John Locke Update / Research Brief

CBO’s Obvious (and Trivial) Conclusion about the Number Insured

posted on in Economics & Environment, Health Care, Health Care & Human Services
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What if the Congressional Budget Office (CBO) put out a study stating that if we had a draft more people would join the military, or if we made taxation voluntary fewer people would pay taxes, or if incandescent light bulbs were once again legal more would be purchased? I think that most people’s response would be something like “the government had to hire a team of professional analysts to figure this out? Couldn’t any random person chosen on the street have told us the same thing?”

There is something that pretty much everyone knows intuitively; if people are penalized for doing something they will do less of it and if that penalty is removed, people will do more of it.

This week the CBO came out with a report assessing the impact, in part, on the number of people who would be uninsured under the Republican plan to repeal and replace Obamacare, known as the American Health Care Act (AHCA). A major feature of the AHCA is that it repeals both the individual and the employer mandates that currently exist under the Obamacare. People in the individual health insurance market will no longer be forced to purchase a health insurance plan of any kind and employers and employees will no longer be forced to include health insurance as a benefit in employment compensation packages. Under current law, U.S. citizens do not have a right to “just say no” to health insurance. If they do, they face the possibility of stiff penalties imposed by the IRS.

The AHCA restores this right and removes these penalties. Surprise! The CBO came to the obvious and trivial conclusion that if the right to not purchase health insurance is restored some people will choose to exercise that right. According to the CBO, by 2018, about 14 million fewer people will be insured than is currently the case under Obamacare’s coercion-based system.

The fundamental policy question that, unfortunately, is not being directly confronted, relates to the extent to which liberty should be sacrificed in order to maximize the number of people covered by some sort of health care plan. In other words, ethically, which is a more important goal – liberty and free choice or seeing to it that people have health insurance coverage?  An overriding principle of Obama’s Affordable Care Act (ACA) was making sure that people have health insurance.  Individual freedom to choose otherwise be damned. In fact, many supporters of Obamacare have been arguing that too much freedom has continued to exist even under the ACA, citing the fact that 30 million people have been flaunting the law (horrors) and remain uninsured. Their solution has been to increase the ACA’s penalties for refusing to purchase insurance and to provide even more subsidies for middle-class families.

Without a doubt, in a free society liberty should supersede any desire to decrease the number of uninsured. Republicans (and Democrats for that matter) should be consistently defending the morality of this tradeoff.  But for those who favor freedom of choice in this debate, it would be wise to emphasize that truly free markets would allow health insurance companies to tailor their plans to the needs of potential customers and to compete with each other on the basis of both price and extent of coverage. Ultimately, this will lead not only lower health insurance costs but to people receiving the kind of coverage they actually want.  These lower costs will mean more people insured. Like any other business, if left free to compete on all margins, health insurance companies will do what they need to do to maximize their customer base and gain as much market share as possible.

It is encouraging to see that both mainstream Republicans in Congress and the more conservative/libertarian members of the Liberty Caucus agree that the individual and employer mandates requiring the purchase of health insurance need to be eliminated. I think that they should take it a step further and make freedom the centerpiece of their health insurance proposals. This would include not only eliminating mandates to purchase health insurance in the first place but the freedom for insurance companies to offer whatever kinds of plans consumers want. This would mean not only eliminating mandates to purchase health insurance but all mandates regarding what insurance plans must cover and any restrictions on selling health insurance to whoever wants to purchase it. Of course, this would include across state lines, although this is by no means a panacea.

Roy Cordato is Vice President for Research and resident scholar at the John Locke Foundation. From 1993-2000 he served as the Lundy Professor of Business Philosophy at Campbell University in Buies Creek, NC. From 1987-1993 he was Senior Economist at… ...

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