Saturday, March 12, 2011

The Individual Mandate and Cost Shifting

John Cogan, Glenn Hubbard and Daniel Kessler have a piece out in the Wall Street Journal arguing that there really isn't a hidden tax in Obamacare that causes 'cost shifting.' The idea behind the hidden tax is that hospitals must charge higher prices to compensate for the uninsured who skip out on their bill. This has been the argument of both the Obama administration as well as Governor Mitt Romney in MA. Of course, the Obama administration has argued that the Affordable Care Act is constitutional because it attempts to erase this hidden tax. Cogan, Hubbard, and Kessler review the health care literature in an attempt to prove that Obamacare isn't constitutional.

Their conclusion is powerful. The three academics review various studies that show that either doctors and hospitals have not raised their fees or have done so at a negligible amount. After reading their findings, I was all prepared to write about how the justification of the individual mandate may not be so strong.

I was going to do so until I finished reading the three academics' article. They continue, without missing a beat, writing that Congress ignored the findings of these studies when it passed the Affordable Care Act.
Specifically, Congress ignored the $40 billion to $50 billion that is spent annually by charitable organizations and federal, state and local governments to reimburse doctors and hospitals for the cost of caring for the uninsured. These payments, which amount to approximately three-fourths of the cost of such care, mitigate the extent of cost shifting and reduce the magnitude of the hidden tax on private insurance. 
Let's review the logic here.

1. Cost shifting is small (1.7 percent according to the evidence cited by Cogan, Hubbard and Kessler)

2. The reason why cost shifting is so small and therefore there is no hidden tax is because of private donations and tax-funded government spending.

3. Wait, was number 2 an oxymoron?

Ok, ok. I get it. Cogan, Hubbard and Kessler may have a legitimate argument that the Affordable Care Act is not constitutional. There really may not be a large "hidden tax," and therefore the federal government may not have the constitutional right to take corrective action. But the reason why there is not a hidden tax is because of private donations and, ur, taxes. It's just a little bit more hidden than the alleged hidden tax.

So what does this mean?

If the Supreme Court rules that the Affordable Care Act is unconstitutional, then conservatives will need to find some way to address the inefficiencies in the current health care industry. There is a great deal of cost shifting taking place. Just because it is being covered "annually by charitable organizations and federal, state and local governments to reimburse doctors and hospitals for the cost of caring for the uninsured," doesn't mean it isn't there.

Cross posted at The Cross Culturalist.


Anonymous said...

There you go again Pablo. Using reason, logic, and research. Shame on you. Throw more firebombs.

Doug NYC GOP said...

Nice job Pablo.

And because the cost shifting of care for the uninured is being covered "annually by charitable organizations and federal, state and local governments," Massachusetts and Mitt Romney decided they wanted to use the dollars the were ALREADY spending plus the $$$$$ the Feds were ALREADY giving them, to provide people the means to buy their own PRIVATE insurance.

Now is Mississippi, Arkansas or Alaska want to contruct a different plan, or do nothing at all, that's their business. MA decided on this plan and by most recent accounts the folks there like the program.

And they ain't all Socialists, either.

BOSMAN said...

Great job on this Pablo.

There are men of action when it comes to creative financing of health care (Romney) and then there are those who criticize and chose to do nothing when the ball was in their court.

Romney chose to use the money that ALL STATES get towards patient care in emergency wards. Others chose to do nothing and let the hospitals figure it out. Results:

According to Gallup, these are the rankings out of the 50 states for having the least uninsured:

Massachusetts 1
Arkansas 37
Alaska 38
Mississippi 48

Pablo said...

Wait, Mississippi wasn't dead last? That is the first category I have seen that doesn't have Mississippi guarding the rear. 48th place. Alright!

Revolution 2010 said...
This comment has been removed by the author.
Revolution 2010 said...

There is NO DOUBT in my mind, that if the majority of all states had tackled this issue on a LOCAL LEVEL (STATE). The need for a national program, would have never come up.

Anonymous said...

The constitutionality of Obamacare in general, and the individual mandate in particular, does not depend on whether or not there is a large "hidden tax" built into health care. Congress wrote the Act with direct citation to and dependence on its powers of regulation under the Commerce Clause. Beyond that point, the Act itself exempts or subsidizes the very people that cause cost-shifting. Thus, rather than eliminating health-care cost shifting, the Act codifies it, forcing higher-income, healthy people to pay health care insurance costs for lower income and higher-risk people. It would have been more honest and more clearly constitutional to simply enact a new tax to subsidize health care for such persons, but Obama would not have been able to promise a free lunch to everyone if the debate had been framed as a new tax.