Paul Krugman posted a blognote responding to my earlier comment criticizing his column on Obama and mandates. I posted this response on his blog, which I have pasted below. I would summarize our difference on this issue as being whether an actual mandate is the only and best mechanism to prevent free-riding on community rated health insurance (everyone pays the same fee, regardless of their health). We don't disagree that healthy people would have the temptation to engage in such free-riding (wait until you get sick to sign up) without some enforcement mechanism: I appreciate Paul’s response. Let’s quickly try to sort out some issues. First, I completely agree that Obama’s criticisms of the Clinton proposal for including mandates were both bad policy and really bad politics. We absolutely need a mandate-like mechanism to prevent freeloading. I am also entirely willing to believe that Obama and his staff are doing patchwork planning to get around the fact that he did not include a mandate in his plan. Having said this, the question to my mind is whether there is an alternative route of automatic enrollment plus late enrollment penalties that can do the work of a mandate, and possibly be more salable politically. Paul’s argues that it won’t fly, I’m not convinced. First, if we have a well-designed auto-enrollment mechanism, it should take care of the inertia problem. Making it well-designed could prove problematic, but if we get the mechanics right, the only people who remain uninsured are those who deliberately opt out of a plan. Who would make the decision to opt out? Presumably not low and moderate income people. These people are looking at substantial subsidies under the Obama plan. If they do the arithmetic, they are likely to find that they come out much better taking the insurance, even if they are in relatively good health, especially if they have kids. Furthermore, since their enrollment would be heavily subsidized, the plan doesn’t lose much money if they opt to take their chances. This is bad from the standpoint of getting everyone covered, but it will not matter much for the finances of the program. Anyhow, presumably most low and moderate income people either can’t be bothered and accept the default enrollment, or realize that it makes more sense to be enrolled, so they are in the system. The more likely gamers are relatively well-to-do folks in reasonably good health, especially those without children. Suppose these people try to game the system and then develop a chronic health problem a few years down the road. Paul thinks that we would not be able practically or politically to hit them with late enrollment penalties. I think that we could. These are higher income people who could afford to pay more for insurance. Even if their health condition affected their income, this group is likely to have some assets: a house, a car, a 401(k). The late penalty could be paid from these assets. Would it be politically viable to seize assets from sick people? I think that it could be. After all, these would be folks who consciously made a decision to opt out of insurance – they were trying to game the system (for the record, we already have late enrollment penalties for the Medicare drug plan). Ideally, the prospect of ending up in this situation would put the fear of god in enough people so that gaming would be rare, but we really can’t know this in advance. The reality is that both a late enrollment penalty and a mandate pose raise some unpleasant scenarios. (What do we do to people who don’t comply with the mandate?) I don’t know which one is better, but I’m not prepared to condemn Obama for trying the former route.
--Dean Baker
