Archive for March, 2012

Two of the central planks of the Patient Protection and Affordable Care Act (PPACA) go by the names of ‘guaranteed issue’ and ‘community rating’. According to guaranteed issue, no health insurance company is permitted to deny someone coverage based upon a pre-existing condition. According to community rating, insurance companies must offer the same policies to everyone for the same price. The idea is that health status is largely something beyond anyone’s control, and so it is unfair for those who, through no fault of their own, suffer ill health to have to pay a price for it. Whatever you think of the merits of these ideas, they’re embedded (in spirit, despite lots of exceptions) in the PPACA.

The worry, in theory, is that many people will wait till they develop a pre-existing condition to get coverage, saving premium expenses in the meantime. The reason is if they do so, they will not have to worry about being denied coverage because of guaranteed issue, and they will pay the same price then whether they buy it now or not. If people in fact do this, insurance companies will only have relatively sick people on their rolls, forcing them to raise premiums to cover the cost of their claims. Higher premiums, in turn, will encourage the relatively healthy among the insured to forgo insurance, rendering the pool still sicker, driving up premiums more. And so on and so forth.

This problem is known as ‘adverse selection’. The ultimate outcome, in principle, is that the price of insurance will spiral upwards until it is no longer a profitable business, causing a disappearance of the market. This has not happened in any of the states that have guaranteed issue and community rating policies, but it has been shown that their premiums rise faster than in states without those policies. What we can expect, then, is that they will quickly and sharply drive up the cost of health insurance.

The purpose of requiring everyone to buy health insurance is to prevent this spiral from getting off the ground. If everyone has insurance, no one can forgo it until they get sick, making adverse selection a non-issue. Arguably, there are other reasons to be wary of such a mandate, but most experts agree it is essential if community rating and guaranteed issue are to work without causing premiums to explode. If the Supreme Court rules the mandate unconstitutional, leaving these other pieces in place, the PPACA is going to cause a lot of problems no one particularly intended.This is why they may choose to eliminate guaranteed issue and community rating, too, in which case the core of the bill will be withdrawn.

I’m not a lawyer, but for what it’s worth, the mandate isn’t that big a deal. Suppose that the government decided to tax every citizen, to pay for a ‘motherhood and apple pie fund’. They then also decide that they’re going to cut a check of the same size to everyone who has health insurance. Nobody would dispute the constitutionality of either of those measures in the slightest, and yet together they amount to a fine for those who do not have health insurance. The only difference is that this is called a ‘tax’, while the mandate’s fee is a ‘penalty’. Note that the penalty is collected by the IRS, and you cannot go to jail for refusing to pay it. Sounds like a distinction without a difference to me.

Legal opponents raise the question of what limits there are on the government if it can require you to buy something. This, to me, is pretty silly. It isn’t requiring you to do anything. It’s just using the word ‘require’ to stigmatize those who choose not to get health insurance, making them feel like outlaws. It also asks them to pay a fine for doing so. The government isn’t coming into anyone’s home, insisting that they buy health insurance at the point of a gun. They’re just making your life a bit more difficult if you don’t get health insurance. Welcome to society. Sometimes the government has to make certain things more of a headache for the sake of promoting the general welfare. PPACA may or may not promote the general welfare, but saying that the government can’t give you a headache for making certain decisions is to say that the government cannot affirmatively try to solve any social problems at all. If you don’t like the PPACA, try to elect some folks who will get rid of it. Don’t try to make it impossible for the government to solve large social problems going forward.

Suppose you’ve imposed a (non-trivial) burden upon someone else without their consent. What is the right course for society to take in response? One option is to force you to fully compensate your victim. Requiring sufficient compensation would completely transfer the cost you’ve imposed upon the rest of society back to you. Knowing this ex ante, your individual cost-benefit calculation becomes identical to society’s cost-benefit calculation, for you expect not only to enjoy every social benefit, but also to suffer every social cost, flowing from your decision.

What ought to happen, then, if you do not have the funds to fully compensate your victim? The government may well seize your physical assets, selling what they can to make up for the shortfall. If even that is not enough to repay your debt to society, the government may have to take ownership of a more intimate asset: you. As with a bankrupt firm, the government may lend you the money you require to fully compensate your victim in a timely manner, but must take temporary ownership of you while you repay your debt in exchange. You would, in effect, be offering to collateralize such a risky loan with the only valuable you have left: your future stream of income.

Here’s my proposal: when a crime is committed (ignoring so-called victimless crimes for the time being), the government produces a transparent, predictable estimate of the crime’s social cost. If the criminal is able to fully pay the price, possibly by liquidating her portfolio, she may do so. If she is not able to pay the price, she goes to prison. Instead of serving a prison term, however, her mandate is to pay down her debt to society in full. In prison, she can produce whatever goods and services it is feasible for her to produce in that setting, which the government will sell to the general public, collecting most of the proceeds. With her small share of the proceeds, she may purchase a better standard of living in prison, or she may contribute extra funds towards paying down her debt, thereby shortening her stay in prison.

The signal such a policy would send is clear: if you commit a crime, be prepared to pay the price. If you’re not so prepared, you will be partially enslaved by the government (i.e., the government will have a controlling equity stake in you) until you have paid the price. Moreover, the higher the quantity and quality of the goods and services you produce for the general public’s consumption, the better your standard of living in prison, the sooner you exit prison, or perhaps both. Your incentive before you commit the crime is to carry out society’s cost-benefit calculation for yourself, and even if you go through with it, your incentive is to be as productive as possible for the benefit of your society, much as it would be outside of prison. Fewer people would be in prison, most would have shorter and less miserable stays, and much less human capital would be wasting away behind bars. All while reducing crime rates. What’s not to love (besides the optics of slavery 2.0…)?

The results

Posted: March 7, 2012 by alephnaughty in Politics
Tags: , , ,

Compare with my predictions

Washington–Romney, Paul, Santorum, Gingrich (67% correct)

Alaska–TBD
Georgia–Gingrich, Romney, Santorum, Paul (100% correct)
Idaho–Romney, Paul, Santorum, Gingrich (100% correct)
Massachusetts–Romney, Santorum, Paul, Gingrich (100% correct)
North Dakota–Santorum, Paul, Romney, Gingrich (83% correct)
Ohio–Romney, Santorum, Gingrich, Paul (100% correct)
Oklahoma–Santorum, Romney, Gingrich, Paul (83% correct)
Tennessee–Santorum, Romney, Gingrich, Paul (100% correct)
Vermont–Romney, Paul, Santorum, Gingrich (83% correct)
Virginia–Romney, Paul (100% correct)

That’s 92% correct overall. If you just count Super Tuesday states, I was 94% correct. A/A- seems fair.

Note also that these contests could’ve played out in one of over 2.6 trillion different ways. Come on…fives.