Paul Krugman’s False Analogy to Medicare In Support of Mandates

Paul Krugman makes some serious errors as he continues his attacks on Barack Obama for proposing a health care reform plan without a mandate for all individuals to purchase insurance. There are pros and cons to both positions but Krugman writes as if only plans with mandates are possible. This ignores the fact that most of the Democratic candidates for the 2008 nomination, including John Edwards, proposed plans which lacked mandates but most Democrats considered them worthwhile. The ultimate goal was to help those who desire to obtain health care coverage but are not able to do so, not necessarily to achieve universal coverage. As Obama’s Fact Check web site points out, even Paul Krugman had a favorable review of Obama’s plan until this turned into a political battle with Obama on one side and Edwards and Clinton on the other.

One objection is that a plan without a mandate is not universal, although many concede that even plans with a mandate will also not be universal. While some such as Robert Reich argue that Obama’s plan will lead to more people being covered than Clinton’s plan. Krugman might be right in disputing such arguments. It is quite plausible that any plan which makes something required will be more universal than a voluntary plan, but that is hardly the only criteria by which to judge plans. How about a plan in which everyone who fails to purchase to buy insurance is shot on the spot? One way or another that will guarantee universal coverage, but few would find this desirable. (Some might argue it is preferable to John Edwards’ plan to sick the IRS on those who do not comply.)

Krugman raises additional objections, including a fallacious analogy to Medicare:

Look, the point of a mandate isn’t to dictate how people should live their lives — it’s to prevent some people from gaming the system. Under the Obama plan, healthy people could choose not to buy insurance, then sign up for it if they developed health problems later. This would lead to higher premiums for everyone else. It would reward the irresponsible, while punishing those who did the right thing and bought insurance while they were healthy.

Here’s an analogy. Suppose someone proposed making the Medicare payroll tax optional: you could choose not to pay the tax during your working years if you didn’t think you’d actually need Medicare when you got older — except that you could change your mind and opt back in if you started to develop health problems.

Can we all agree that this would fatally undermine Medicare’s finances? Yet Mr. Obama is proposing basically the same rules for his allegedly universal health care plan.

There is a major problem with this analogy to Medicare. Medicare is primarily paid from payroll taxes collected throughout a person’s working life as opposed to premiums paid for the year the insurance is actually in effect. Someone who skipped paying their payroll taxes their entire life and then joined Medicare would certainly have a fantastic deal, but Obama is not advocating anything similar to this. Those who opt in later would have avoided paying premiums for periods in which they didn’t have coverage, which hardly sounds unreasonable, but would still have to pay premiums once they decide to opt into the system.

It wouldn’t be difficult to structure the system to prevent people from getting a free ride by waiting until they have medical problems. This might be one situation in which preexisting condition clauses could be maintained. There is also a far better analogy from Medicare than the one Krugman provides in the Medicare Part D Program. The new program which covers pharmaceuticals, despite having many other flaws, has found a way around this type of problem. The plan is voluntary to join the plan but there are two forms of restrictions on those who haven’t joined but decide to join in the future. There is open enrollment for only part of the year, making it a gamble for people who might develop an expensive medical condition in March and have to pay for their prescriptions out of pocket until the following January. There is also a penalty as those who join later must pay higher premiums once they opt in to offset the fact that they didn’t pay into the system when they were younger and presumably less expensive to cover.

Besides his erroneous analogy to Medicare, Krugman fails to realize that, regardless of his arguments for it, a mandate is a case of government telling people how to run their lives. While a health plan with a mandate might be easier to set up, and perhaps even be less expensive, this does not change the fact that it is an unnecessary case of government telling people what to do. Krugman is concerned about the political liabilities Obama might face by repeating what Krugman considers to be right wing talking points. If Krugman as well as Democrats want to argue that free choice is a right wing talking point, and not a principle they support, they face far greater political problems than those Krugman warns Obama about.

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  1. 1
    datadave says:

    great reply. I think the world of Krugman until now. He’s soo out of touch of what’s happening in the nonacademic middle class. To force many of us who in the middle of the average incomed…about 30 to 50 K a year to pay outrageously high premiums for health insurance is a travesty. We’re not ‘gaming’ the system. We simply cannot afford 20 per cent of our income to go into a privatized health benefit that benefits the rich over the rest of us. Krugman needs to do the numbers and see that a Mandate is in fact a very REGRESSIVE tax upon the “Free Agents” of the middle class who are in fact forced into being uninsured by the set fee schedule of so-called “health care providers”.

    the Mass. state reform is an example of how a mandate isn’t working for the small business employed and low incomed ‘contractor’ class which unfortunately is a class that is very hard to get out of even if one wants ..unless one takes the many 10 dollar an hour jobs available…that have minimal health care benefits but don’t pay a living wage. In our Class System of health care we see that the very poor and the very rich pay next to nothing for their health care in proportions of income paid than the middle incomed…which today is only making $17.63 an hour. Now Krugman should know that mandates only give subsidies to those who make maybe 20K or less a year while leaving the middle (33K a year) paying full costs for insurance …even a higher rate than most millionaires pay with their high deductables and big savings. In Mass. insurance rates have gone up 10 percent or more After mandates have been applied. There will be no savings as the uninsured aren’t costing the whole system more than 5 percent a year from my calculations. With premiums going up double digits almost every year….the poor middle class will be paying ever more higher premiums to a privatized monopoly.

  2. 2
    Ron Chusid says:

    In theory the subsidies and other measures will make the insurance affordable. I think you should purchase insurance. Paul Krugman thinks you should buy insurance. The difference is that I understand that the decision is ultimately yours and you are free to do different from what I think is preferable, while Krugman does not.

    Incidentally, you mentioned the fee schedules of health care providers. This is one reason to have insurance, even if with such a high deductible that the insurance rarely if ever kicks in. If you have no insurance you are charged whatever the fee is. If you do have insurance then, depending upon the type of plan, you often only have to pay what your insurance approves which might be significantly less than the charges.

    The system of having multiple insurance fee schedules contributes to this problem. Insurance plans differ in how they determine what they will pay and some will pay a lot for some types of services and little for others while other plans might do so in reverse. Therefore it is necessary to set fees for all services on the high end so that payment maximum payment is received in the areas where each insurance pays the best. This leaves those without insurance being charged high amounts on everything.

  3. 3
    prithimp says:

    It seems simple common sense.. the more number of people that buy into the system the more number of people to share the cost of healthcare .thus it is important that even the young and healthy are encouraged to buy into the system so that the costs of looking after the old and sick are offset by the contributions of the young & healthy into the system. Of course as they age they too will begin to reap the benefits of having the next generation’s contributions reducing the total cost of healthcare.

  4. 4
    Ron Chusid says:

    There’s some problems with this “common sense.”

    First of all, mandates don’t ensure 100% compliance and there have been a number of comparisons of the plan which conclude that either Obama’s plan will result in as many people being insured as under those who advocate a mandate or at least in the same ball park. There is no evidence that insurance costs will be any less expensive without a mandate. It’s not as if all young and healthy people will stay out of the system–and if they do it would suggest serious problems in the health care plan.

    Secondly, if those who enter later pay a higher premium as I suggest above, this could offset the effect of not having all young people in the system.

    Thirdly there’s the ethical problem of compelling people to do something when it is not necessary. Health care plans can work fine without a mandate. Even if it would make it less expensive, which is questionable, it doesn’t make it right to force people to purchase something so that other people’s health care plans will be less expensive. Not everyone might even see participating as being worthwhile, such as those with religious objections to health care or the wealthy who prefer to pay cash to preserve privacy.

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