Wednesday, August 6, 2014

The Politics of Halbig and Making Obamacare Voluntary for States

  Professor Gamage and I have been blogging on the law and legislative history of the Halbig Obamacare case, but the political economy is interesting too. Our governor in Indiana is Governor Pence, a   conservative former U.S. Representative with a lot of talent and ambition (and a legislature controlled by his party).  One of my law-and-econ colleagues said, “My guess is that Governor Pence’s refusal to set up an exchange will last only as long as his presidential ambitions.” 

If Indiana residents can’t get Obamacare subsidies because there’s no state exchange, as Halbig says, then there are going to be some angry voters here! But some people will be happy too, because if people in  Indiana don’t get the subsidies, Hoosiers don’t have to comply with  the individual or employers mandates to buy health insurance. So how does the political calculus work out?


     First, think about the individual mandate. The whole idea of a mandate is that  people are being forced by the government to  do something they don’t want to do. Here, the idea is that the law will force healthy people and people who  prefer risk to the administrative costs to buy insurance so as to reduce adverse selection, reducing the price of health insurance for more risk-averse and less healthy people (in particular, for those with pre-existing conditions). This involves a large number of healthy people subsidizing a small number of unhealthy people; mandatory AIDS coverage, for example, requires large expenditure on  a few people but zero expenditure on most. So the mandate per se is a political negative. Both Pence and Obama will be more popular if it isn’t imposed, ceteris paribus.

    Of course, if you get enough subsidy that your insurance is free, you don’t mind the mandate. So the question is whether enough of the uninsured qualify for the subsidy.   Poor people are out of the political calculus. They are eligible for Medicaid, so the mandate-and-subsidy part of Obamacare doesn’t matter for them. What we might call medium-poor people are the ones who must buy insurance but would also have gotten a subsidy. Remember, though, that the whole idea is to get the more-healthy people into the pool so they can subsidize the less-healthy.  Otherwise, government subsidies for the medium-poor would just be an even bigger expansion of Medicaid. For the program to succeed, it needs the monetary contribution of most of the uninsured. So most of them are going to be unhappy, overall.

   There is also the extra cost to taxpayers.  That is borne nationally, so  adding Indiana subsidy-receivers wouldn’t raise the taxes of Indiana voters by much. But note that it would raise them slightly, so   taxpayers who aren’t otherwise affected by the subsidy or employer mandate (the vast majority) are going to be   slight losers if Indiana participates in Obamacare.

    How about the employer mandate?  The mandate would force large employers to offer insurance if they didn’t earlier. The immediate effect is a huge benefit for their workers and a huge loss for the employers. Since many or most of the big employers are nationally owned,  the net result is a big gain for Indiana (though another small loss for otherwise neutral voters if they own stocks directly or through their pension funds).

   In the long run, though--- which means when the value of wages changes to its equilibrium level---   employers will lose less, and employees will be losers.  Again: a mandate is a command to do something you didn’t want to do voluntarily. Employment is  a contract between employer and employee. The employee gets a compensation package in exchange for working. He can ask for cash, or he can ask for less cash  but insurance too. The effect of the mandate is to force workers who preferred all cash to  take less cash plus insurance. Moreover, if the “less cash”  has to  be below the minimum wage to make the employer willing to hire the worker, the mandate will force the worker into unemployment.  Part of the support for Obamacare was because people did not understand economics. Economists know this, but many of them supported Obamacare, because the employer mandate also has a  benefit: employees can’t forego insurance and use Medicaid or charity medical care instead when they get sick. The employer mandate forces everyone to pay their share, and also puts insurance companies in place as monitors for unnecessary medical care. This benefit is real, but it is politically problematic, because the beneficiaries don’t realize they’re benefitting. The beneficiaries are taxpayers who pay for Medicaid  and paying medical patients who pay higher prices so doctors and hospitals can cover charity patients. So here, too, once a year or so has passed, I foresee more political gain than benefit from  Indiana non-participation for Pence and Obama.

  You may think it odd that I say Obama would benefit politically from Indiana non-participation.  That’s because  quite aside from its overall merit, Obamacare is a political plus in the short run but a political minus in the long run. People did not understand it when it passed, and so most people thought they were direct winners. Implementation was purposely delayed till after the 2012 election because most people would think they were losers once the effects were felt.  Even if the program had a wonderful effect in stopping wasteful health care spending and helping out unfortunate people who couldn’t get insurance, most people wouldn’t make the connection with lower spending and would notice that they had less cash in their pockets.

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