Category Archives: Health Care Reform

On the role of health insurance as an “enabling technology” that facilitates risky behaviors…


The vast majority of the ads shown on the website promote health insurance as an “enabling technology” that facilitates various risky behaviors; e.g., uncelibate sex, binge drinking, bungee jumping, white water rafting, etc. These ads are (condescendingly and stereotypically) targeting millenials whose overpriced premiums are needed in order to cross-subsidize premium costs for older, sicker people. It turns out that the financing model underlying the so-called Affordable Care Act (ACA) critically depends upon such cross-subsidies in order for ACA to be financially sustainable. Without these cross-subsidies, the more likely outcome for ACA is what Cutler and Zeckhauser (1998; cf. refer to as an “adverse selection death spiral” (see also AEI Resident Fellow Scott Gottleib’s Forbes piece on this very same topic @

Since the ACA is designed to vastly expand Medicaid and offer subsidies to households with incomes up to 400% of the federal poverty level, then somebody has to pay for it. And if the plan works as it is supposed to, young middle class workers will have to enroll in droves to pay for overpriced insurance. However, based upon the early returns from enrollment at the Federal and state websites, this does not appear likely. Thus the aggressive ads designed to convince otherwise reticent millennials to sign up for overpriced insurance.  Apparently health insurance can be “fun” because it makes it possible to not have to fully internalize the costs of risky behaviors.  This would be the Peltzman effect on steroids

The aforementioned website ( is “…a project of the Thanks Obamacare campaign, created by the Colorado Consumer Health Initiative and ProgressNow Colorado Education to educate everyone about the benefits of the Affordable Care Act.”


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The Affordable Care Act, adverse selection, and the “insurance death spiral”

The so-called Affordable Care Act provides a superb “real world” study of the consequences of adverse selection. This is further analyzed and illustrated in a Forbes article which was published today on the website. The author of the article is Dr. Scott Gottlieb, who holds a research appointment with the American Enterprise Institute in Washington, DC. Also see “Adverse Selection – a definition, some examples, and some solutions” and the Wikipedia article about adverse selection (@

Obamacare Faces A ‘Death Spiral’ — But It Turns On The Declining Participation Of Health Plans, Not Just Rising Premiums

“Given the failed launch of Obamacare, there’s a real chance that the entire scheme falls into an “insurance death spiral” — but not as visibly (or rapidly) as the way these sorts of unsuccessful insurance pools usually unravel. A death spiral happens when only the sickest beneficiaries get into an insurance pool, causing the cost of medical claims to rise, and in turn raising future premiums. These higher premiums, in turn, dissuade healthier beneficiaries from buying coverage. This exacerbates the strains and makes sure the pool continues to attract only the sickest consumers who are most in need of the medical coverage, and willing to pay the rising premiums. This is how the downward spiral ensues.”

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Today’s page 1 Wall Street Journal story…

This (an article entitled “Software, Design Defects Cripple Health-Care Website“) is THE page 1 story in today’s issue of the Wall Street Journal. It provides a fascinating case study which corroborates historian John Steele Gordon’s essay from May 2009 entitled “Why Government Can’t Run a Business” (available from; in that essay, Gordon notes (among other things) that “Politicians need headlines. Executives need profits.”

Software, Design Defects Cripple Health-Care Website

The federal government acknowledged for the first time Sunday it needed to fix design and software problems that have kept customers from applying online for health-care coverage.

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Aetna CEO Sees Obama Health Law Doubling Some Premiums

Aetna CEO Sees Obama Health Law Doubling Some Premiums – Bloomberg.

From Bloomberg News: According to Aetna Inc.’s chief executive officer, health insurance premiums may as much as double for some small businesses and individual buyers in the U.S. when the Affordable Care Act’s major provisions start in 2014…

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EconTalk – Cochrane on Health Care

EconTalk – Cochrane on Health Care:

Quoting from the EconTalk summary of this interview: “John Cochrane of the University of Chicago and Stanford University’s Hoover Institution talks with EconTalk host Russ Roberts about how existing regulations distort the market for health care. Cochrane argues that many of the problems in the health care market would go away if these distortions were removed. In this conversation, he explores how the market for health care might work in the United States without those distortions. He also addresses some of the common arguments against a more choice-oriented, less top-down approach.”

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On the “mandate” to purchase health insurance under the Affordable Care Act

An academic colleague of mine raised an interesting question the other day concerning the constitutionality of the so-called “mandate” to purchase health insurance under the Affordable Care Act (ACA, otherwise known as “Obamacare”).  Specifically, since the federal government has the power to compel U.S. citizens to pay into Social Security, why doesn’t it also have the power to compel U.S. citizens to purchase health insurance?  For what it’s worth, here’s my understanding of the answer to this question. 

The reason why the Social Security “mandate” is constitutional is because it is legally set up as a tax paid to government (i.e., the so-called Federal Insurance Contributions Act (FICA) tax), and under Article I, Section 8, Clause 1 of the Constitution (AKA the “Taxing and Spending Clause”), “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises”. Furthermore, Social Security does not involve any private sector intermediation; FICA taxes are formally entrusted to various “funds” that are administered by the Social Security Administration. As Dan Henninger points out in his recent WSJ article, an important problem with the Affordable Care Act “mandate” is that purchasing insurance is defined by that law as a “required contribution”” and not a tax per se. Furthermore, while ACA conveys a tremendous amount of discretion to the federal government (particularly the Secretary of the Department of Health and Human Services) in terms of the way that it regulates health insurance contracts and institutions, the contracts that are entered into under ACA are mostly with private sector institutions as opposed to public sector institutions. So it seems that the constitutional challenge created by Obamacare is whether the federal government has the power to coerce citizens into purchasing goods and services from private sector institutions. This is a right that state governments clearly have (e.g., most states have mandates requiring drivers to purchase auto insurance), but not the federal government. Ironically, a so-called “single payer” approach such as Canada and the UK have would not have any constitutional issues for the same reasons that Social Security is constitutional, since under single payer, taxes would be collected and entrusted to some type of federally administered trust fund. However, “single payer” is a political non-starter (at least at this point in time).

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Dissection of today’s biggest Constitutional issues by Richard Epstein (NYU Law School) and John Yoo (UC-Berkeley Law School)

This week’s (“Uncommon Knowledge”) video features two of the nation’s leading Constitutional scholars: Richard Epstein, professor of law at New York University, and John Yoo, professor at the University of California at Berkeley law school. Together, they use their expertise to dissect today’s biggest Constitutional issues, from Obamacare to California’s Proposition 8. Listen as they discuss the importance of the Supreme Court in deciding these and other political issues.” (Hat tip to Ken Coffel!)…

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