Cochrane has no alternative to Obamacare

12/29/2013 10:01:00 PM
The debate term is perm. Cochrane loses this debate because the Affirmative perms the counterplan.
I see that John H. Cochrane has a column up at Cato titled "What to do when Obamacare unravels." I don't know what a respectable economist like Cochrane is doing writing for a hacktank like Cato (the name of which disrespects Trenchard's and Gordon's legacy!), but I digress. When it comes down to it, I broadly agree with many of Cochrane's recommendations--yes, we really do need to repeal many of the regulations on healthcare and health insurance providers. A lot of these regulations do little other than act as a barrier to entry, protecting incumbent oligarchs from cost-cutting, quality-improving entrants. However, I have a few critiques.

First, I want to throw down the marker right here. Cochrane is predicting in no uncertain terms that there will be problematic levels of adverse selection:
"This fall’s website fiasco and policy cancellations are only the beginning. Next spring the individual mandate is likely to unravel when we see how sick the people are who signed up on exchanges, and if our government really is going to penalize voters for not buying health insurance"
Specifically, Cochrane's prediction is that the levels of adverse selection will exceed the professional forecast by a significant margin. This is a testable prediction. I'm making a big deal about this because Cochrane was one of those predicting hyperinflation in 2009-10 but now claiming they were speaking metaphorically, or something.

Now, Cochrane frames his peice as an alternative to Obamacare:
"There is an alternative. A much freer market in health care and health insurance can work, can deliver high quality, technically innovative care at much lower cost, and solve the pathologies of the pre-existing system."
But despite his own rhetoric, what follows is not an alternative to Obamacare at all. He just lists a bunch of state-level policy recommendations that don't contradict any parts of the ACA at all. His policy proposals include:
  • We should repeal regulatory barriers to entry
    "Health care and health insurance are strongly protected from competition. ... Regulatory compliance costs, approvals, nonprofit status, restrictions on foreign doctors and nurses, limits on medical residencies, and many more barriers keep prices up and competitors out."
    Fact: these are all state-level regulations. While the ACA, a federal law, does nothing to repeal state regulations, the fact remains that state-level deregulations would do nothing to guarantee everyone has access to health insurance--you still need a mandate to get guaranteed issue. Cochrane tries to claim that deregulation and Obamacare are somehow mutually exclusive:
    "The Affordable Care Act bets instead that ... “accountable care” organizations will force efficiency, innovation, quality and service from the top down."
    But I want to point out that Yes We Can restructure how hospitals are compensated while also reducing the regulatory barriers to entry.
  • We should do the things Obamacare already does
    "Health insurance should be individual, portable across jobs, states and providers; lifelong and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick."
    That sounds a lot like Obamacare! Obamacare creates the first ever nation-wide market for portable, individual, guaranteed-renewable health insurance. One of the things you have to do to get those things is have an individual mandate, because otherwise adverse selection would destroy the market. Now, there's one thing here that Obamacare doesn't do, and if Cochrane followed the healthcare debate at all, he'd know exactly why: health insurance is not portable across states because a federal law making it portable would necessarily prohibit states from regulating health insurance. The only other caveat I'd add here is that health insurance won't be portable across jobs for many people until we eliminate the tax subsidy for employer sponsored health insurance. Obamacare doesn't do that. But again, this is something we should do in addition to implementing Obamacare, not instead of.
  • We should repeal the employer mandate:
    "Rather than a mandate for employer-based groups, we should transition to fully individual-based health insurance."
    Ok, yeah, this is pretty boilerplate stuff that health wonks on all sides of the isle have advocated from the start. The employer mandate in Obamacare was bad policy. Fun fact: the original draft of the ACA did not contain an employer mandate--this language was added at the request of senate republicans, largely to shift the cost of the ACA off-budget.
  • We should do other things Obamacare already does
     "we need ...inexpensive, catastrophic-coverage insurance."
    Most people consider the ACA's bronze-level insurance to be inexpensive catastrophic insurance. I've shown before how Bronze-level coverage is comparable to the examples of "catastrophic coverage" conservatives always point to (BTW: while conservatives point to those examples, they point right back at Obamacare!). So, to all conservative wonks out there: put a little check mark next to "make cheap catastrophic health plans available." We just did that, ok? Now, what's next?
The rest of Cochrane's piece is handwaiving about how competition-inducing deregulation would somehow solve the totally unrelated problem of adverse selection. Listen: it won't. It just wont. Adverse selection arises whenever customers know more about their own health status than their insurers do. That has absolutely nothing to do with the amount of competition among insurers or healthcare providers. Like I said, I'm all for deregulation to increase competition. But we will still need to make sure people have access to this newly competitive market, and that's exactly what Obamacare does.