"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Monday, July 8, 2013

Obamacare and Moral Hazard

Economists have a term that is useful to describe many aspects of Obamacare -- "moral hazard."   Insurance companies have a similar concept -- "adverse selection."   The concepts essentially define situations where economic incentives are structured so as to reward fraud with very low risk of punishment, or to reward free-riding on the wealth of others; under such circumstances, fraud and free-riding will predictably occur.   Wikipedia provides a telling example:

Health insurance is an example of a service that suffers both from adverse selection and from moral hazard, and often it is difficult to differentiate the two. Here are some examples:
  • The insured person may choose to conceal certain unhealthy habits or genetic traits that make the insurance attractive for the person but unprofitable for the company. This is an example of adverse selection: The person getting insured has more information about the quality of his or her health than the insurance company.
  • After getting insured, the person is more careless about health. For instance, he/she may take fewer dietary precautions, smoke or drink more, or indulge in physical activities dangerous to the health. This is an example of moral hazard.
There is some fuzziness between the problem of concealing a habit prior to getting insured, and becoming more reckless after getting insured.
Obamacare's employer and individual mandates obviously provide multiple versions of moral hazard.   For the employers, the incentives of Obamacare drive them to make decisions that might be viewed (by some) as immoral -- they are cutting full-time employees to get below the 50 employee threshold, and/or they are cutting hours of employees below 30 hours, all to avoid having to provide insurance to their employees.   Meanwhile, for individuals, particularly young individuals, the "fine"/tax for not buying insurance is so low, and the promise that you can't be turned down for coverage even if you have a pre-existing condition is so utopian (and foolhardy), that no rational individual under 35 or so and in good health should buy health insurance, period, regardless of whether they end up free-riding on the rest of us.  

But here's one I never would have believed, a mini-bombshell that the Obama Adminstration dropped (as is their wont) on the Friday of a holiday weekend:

If you thought the delay in the employer mandate was bad news for Obamacare, just wait. On Friday, Sarah Kliff and Sandhya Somashekhar of the Washington Post discovered that the Obama administration had buried in the Federal Register the announcement that the government won’t be able to verify whether or not applicants for Obamacare’s insurance exchange subsidies are actually qualified for the aid, in the 16 states that are setting up their own exchanges. Instead, until at least 2015, these states will be able to “accept the applicant’s attestation [regarding eligibility] without further verification.”...

The government is going with what Kliff and Somashekhar call “the honor system.” “We have concluded that the…proposed rule is not feasible for implementation for the first year of operations,” say the Centers for Medicare and Medicaid Services. “The exchange may accept the applicant’s attestation regarding enrollment in an eligible employer-sponsored plan…without further verification, instead of following the procedure in §155.320(d)(3)(iii).”

And it’s not just there. The feds will also allow people to gain means-tested subsidized coverage on the exchanges without having to…test their means. “For income verification, for the first year of operations, we are providing Exchanges with temporarily expanded discretion to accept an attestation of projected annual household income without further verification.”...

The goal here is plain as day. The Obama administration is laser-focused on making sure that enough Americans enroll onto Obamacare-subsidized health insurance platforms, because if they do, it will be politically impossible for Republicans to repeal Obamacare in the future.

Politics ain’t beanbag, they say. But deliberately encouraging tens of billions of dollars of waste, fraud, and abuse in order to achieve a political objective is profoundly immoral. It’s a breach of faith with the hard-working taxpayers whose paychecks are being harnessed to a cause many of them don’t support.
In other words, the Obama Administration is like the cops walking the beat in Little Italy when the Mafia Dons ruled the streets.   In exchange for payoffs (votes), they are promising to look the other way while one group of citizens (the uninsured) commit massive fraud, essentially stealing tax dollars from another group of citizens (me, you and people like us).   They might as well announce that they aren't going to prosecute burglary as a federal policy.

Sheesh!   And these are the same people who ask us to believe that they are really really really committed to border enforcement!

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