What we have witnessed in the passage of the Baucus bill by the Senate Finance Committee is an example of something that has plagued social policy legislation since the 1960s (before too, but there wasn’t much social policy legislation before the 1960s): Changing a bill for political reasons so that it no longer makes any sense in terms of the way real human beings respond to incentives.
There is a sound argument for treating health insurance the way we treat life insurance. We can buy life insurance at a constant affordable payment when we are young because our young unlikely-to-die-soon selves subsidize our old certain-to-die-soon selves. Similarly: If we were to go to a health insurance company at age 21 and say, “I will commit to a policy from now until I die,” the health insurance company could give us an affordable rate because our young healthy selves would subsidize our old unhealthy selves. We haven’t treated health insurance that way, but there’s no economic reason we couldn’t.
The bill the Finance Committee passed originally applied a variant of that principle, requiring young people to buy insurance, thereby subsidizing the costs of requiring insurance companies to accept everyone, including those with pre-existing conditions. I’m not sufficiently conversant with the details to know if the numbers worked out the way the bill was originally written, but the principle itself can be respected.
Then, for political reasons, the Finance Committee gutted the requirement for young people to buy insurance, making the penalties so low that it destroys the coherence of the bill. Of course large numbers of young people won’t buy insurance if the penalties are a few hundred dollars. Of course large numbers of them will wait, knowing that they can apply once they’ve got a health problem and the insurance companies will have to accept them. This is not a “plausible possibility.” It is 100 percent sure to happen. And because it will happen, health insurance premiums will rise dramatically—because the legal requirement that health insurance companies accept everyone will not be modified no matter what. And then the whole system will break down, and Congress will come back in to try to repair a program that was transparently, obviously unworkable from the outset.
I’m not writing as a libertarian who doesn’t think government should run healthcare. I’m writing as a citizen who is sick unto death of politicians being stupid.