Why the “mandatory coverages” in Obamacare set a bad stage for future Internet law; Trump is actually on to something

Let’s think a moment about how mandatory insurance can work, in different areas, like health, auto, property.

Generally, you have to have auto insurance to have a driver’s license (how it’s required varies by state) you need property insurance for a mortgage, and with Obamacare (and previously Romneycare in Massachusetts) health insurance.  And Medicare and single payer in most other countries can be viewed as mandatory health insurance, paid for by much higher taxes.

Obamacare (the Affordable Care Act) is partly driven by requirement that “healthy” young people will buy coverages they as individuals are almost certainly not going to need, to support otherwise much higher premiums for people who do need them.  I’ve said here that we probably need publicly funded props (subsidies — not just tax cuts — and reinsurance, to help pay for health care for the sickest people), which would affect the deficit and maybe require cuts elsewhere (maybe in Social Security, for example, slowly increasing age eligibility) to control spending.  I may be OK with some of the aspects of “community rating” – that is, men have to buy pregnancy coverage because it takes two to tango – and we want, as a policy matter, some sort of gender equality. (It wouldn’t hurt me some day if PrEP were covered, although at my age it’s not real likely.)

But requiring people to buy add-on coverages for other people’s risks (“moral hazard”) is generally a dangerous idea, that can set up a bad precedent for other misuse.  That’s one reason why I am somewhat behind “TrumpCare” or “RyanCare” or “PriceCare,” if you really get serious about covering everybody somehow.  The Republicans want the states to take more responsibility for this area.  Under a federal system (compared to a unitary system like China’s) that seems appropriate.  We no longer trust the states to manage their own ideas of “equal protection” (from the 14th Amendment all the way to the Civil Rights Movement of the 1960s, ending with Stonewall) but we generally allow states a lot of leeway in just how they want their residents to pay for services or how much to privatize some services.  States vary on whether or not they have their own income taxes, and to what extent they want to charge user fees or tolls.  As California found out in the late 1970s, they can have their own battles on using property taxes to fund public education.  So, yes, the OMB is appropriate concerned about how the reddest states will handle a block grant approach to health care. But our Constitution and federalism limit just how much coercion the federal government can use, even for worthwhile policy goals.

In the past twenty years, auto and property companies have been combining normal property or physical liability (and damage loss, from accidents and storms) with cyber liability from Internet use.  The latter liabilities can include the cost of defending frivolous defamation suits (as with review sites) and copyright or even incidental trademark or patent infringement (from trolls), but they can also include losses due to identity theft or cybercrime (recently, ransomware).  In some cases, the higher limit auto policies are available only in umbrella policies that have all these other coverages (which have nothing to do with the likelihood of causing an auto accident or of being hit by a tornado).  In fact, as we know from the attempts around 2001 or so by the National Writers Union to buy media perils coverage for its members (and another push for this in 2008, shortly before the financial crisis), the risk for an individual consumer of being sued for Internet behavior is extremely hard to underwrite and predict, compared to the risks in the physical world.

I can imagine (especially from the “Left”) pushes to make cyber insurance mandatory components of property policies, and I hope the GOP would apply the same skepticism to this idea it has to health insurance mandatory coverages.  You can imagine the pressures:  because I have an unusual last name, I’m not as prone to identity theft as someone with an Anglicized name, but should I have to subsidize the premiums of someone more likely to experience it?  Because of the “gratuitous” nature of my self-publication (it doesn’t pay its own way) activity “in retirement” (maybe that’s like “in relief” in a baseball game’s bullpen), I don’t face the same risks as other people who actually need to support families with their writing, but I face my own unusual perils (mostly related to “implicit content” as I found out with a bizarre incident in 2005 when I was working as a substitute teacher – the concept has to do with attracting politically or socially motivated targeted risk to others connected to “you”). The main prevention is to know what I am doing.  (I do;  for example, I know how to recognize scams.)

But the permissive legal environment that has allowed user generated content to flourish does raise serious questions for me, involving some personal matters (how I place value on interactions with others who have more intrinsic need, and how I am willing, with volunteerism, to fit in and belong to a group and speak for its needs – accept “partisanship”).  The legal props include Section 230 and DMCA Safe Harbor, all of which makes me wonder how the Web still works in Europe, where these kinds of protections are weaker and where there is even an enforced “right to be forgotten” (and where, as Trump points out, defendants have to prove they told the truth in libel cases).  The permissiveness seems to have led to an world where there is a lot of recklessness and abuse, ranging from cuberbullying or stalking or revenge porn, to outright terror recruiting — largely because writers with sincerely put arguments wind up preaching to their own choirs, created by news aggregation.  Again, I could be silenced if I had to be insured, because my speech is not “popular” enough to pay its own way, especially in a mandatory insurance world.

(Posted: Wednesday, May 30, 2017 at 6 PM EDT)

Maybe TrumpCare can work, if you do all the homework; Trump leaves out anti-gay language in today’s religious freedom EO

Once again, we’ve seen two controversies today that in some ways relate to how people care for each other or “their neighbors” in a free society.

Here’s a sample criticism of the GOP’s plans to return to state high risk pools in the American Health Care Act that passed the House today, 217-213, a column by David Lazarus, contact reporter, “The GOP’s big lie: Healthcare bill protects people with ‘pre-existing conditions’”.

I think you could make the GOP plan work if you pump enough money (through the states) to support increased premiums for those in the group, with subsidies that most people (except the wealthy) would need to make the premiums reasonable.  They would need to be actual supports or payments, not tax credits (as many have no taxes).  But for the most extreme cases (like the hemophilia case mentioned) would also need public reinsurance to cover the claims.  Even people without pre-existing conditions can have extreme claims from accidents (the Christopher Reeve problem), so a reinsurance mechanism sounds necessary

The fact is, in a society that values human life, it has to be paid for somehow.  The general experience with other western democracies is that most people are more comfortable with the idea of funding the more extreme and misfortune-driven needs with taxation, or public funds.  If we had a Canadian single payer system, health care wouldn’t be so controversial. We’d be used to it.

Otherwise, we have to face the issue of “moral hazard”.  In the insurance world, it’s always problematic to force companies to group coverages to force people to add coverages that they personally will never need, to pay for someone else’s risks, when they buy an insurance product.  I think there is a good analogy with property insurance (homeowner’s and autos).  Imagine if umbrella insurance (covering identity theft and social media liability risks) were required to be part of every homeowner’s policy. But that’s where Obamacare-style thinking could have been headed.

Yes, there are counter arguments when it comes to healthcare, such as gender parity (and it takes two to  tango).  At the end of life, women tend to live longer and need more services (although this is complicated by Medicare and all other issues in eldercare).

I had first rate health group insurance when I worked for ReliaStar and fell in a convenience store in 1998 in Minneapolis.  I kept full salary, got the experimental surgery I needed immediately at the University of Minnesota (and a medical supply company donated the device because it wanted to demonstrate it), recovered completely, as back to work in 3 weeks, and walking without crutches at an Oscar party in about two months, and was covered 100%.  Yes, insurance companies do a better job than average of taking care of their own employees, almost as if we were professional sports players. Yes, there is some cherry picking.

So, as a song(Yul Brynner singing) in “The King and I” reads, this is all “a puzzlement”.  Trump, Price, McConnel and Ryan have some more work to do and more problems to solve. But Donald Trump has insured his own employees for years, as do his two sons now.  I would think he would be familiar with how reinsurance works.

On Trump’s religious freedom EO, allowing religious organizations more freedom to endorse political candidates: Most of “us” are relieved it does not contain the provocative language pandering to the most extreme religious notions, which make other people’s personal lives everyone’s business. My more detailed story is on a legacy blog here.

TrumpCare (or “Repeal and Replace) would have to deal with touchy situations like lifelong HIV medication and even PReP.

(Posted: Thursday, May 4, 2017 at 7:15 PM EDT)

“Moral Hazard”: some of us ask others to pay for our risks

“Moral hazard”, as an economic concept, really has little to do with everyday notions of “moral compass” or “deservedness”.  Rather, it refers to a situation where one party (often an individual person) uses more of a particular resource than he/she/it normally would because another party will pay for part of the cost, without that paying party’s direct knowledge or consent.

At the outset, however, the term seems related to our ideas about personal morality in the context of wealth and/or income inequality, because people often benefit from the unseen sacrifices (unelected costs) born by others.  Politically, the issue does get mixed into Marxist-related ideas about “to each according to his needs”, but also “from each according to his ability” must somehow be compelled.  It gets to be anti-libertarian.

The most obvious area where moral hazard will come up is in health insurance.  Some people will use more health care resources than others because they are inclined to be sicker.  Over a lifetime, age is less of an issue because we will all eventually die and all face increased risk of illness as we get older, so a “morally” appropriate strategy to deal with this problem can be imagined (whether Medicare achieves this is another debate).

Employer-based health insurance, as became common after WWII, tended to use moral hazard because some people in a company used it more than others.  The same is true when you try to regulate the individual market, and especially when you try to compel purchase of insurance, as with the Affordable Care Act (or “Obamacare”).

As an economic principle, when someone with a pre-existing condition uses medical services covered by insurance (without any surcharges) then that person is leveraging moral hazard, whether or not the condition is strictly inherited (genetic), or whether it involves the person’s behavioral “choices”.  As a “moral” (in the other sense) matter, probably most Americans think that genetic pre-existing conditions (like Type 1 diabetes or many childhood cancers) should be covered by the public in some way.  I have suggested that any health care rewrite under a Trump presidency would envision setting un a reinsurance company (public and private) to pay the additional health care expenses attributable to pre-existing conditions, so this issue doesn’t affect ordinary peoples’ premiums (and help lead to the escalation reported in the news shortly before the 2016 presidential election, which may be a bigger reason for Hillary Clinton’s electoral college loss than “the Russians”, fake news, or Comey and email-gate).  But it most be noted that right now, that even with the premium increases, it seems that insurance companies are getting stiffed by the federal government on the pre-existing condition issue (story).

But it is likely that there would be political (and culture-based) disputes on how to cover illness or injury related to behaviors.  The list is long:  cigarette smoking, drug-use, obesity (to the extent that it is perceived as overeating), for openers.  The last two of these behaviors (at least) probably have genetic influences as well as personal choices (the “thrifty gene” in native peoples and obesity and Type II diabetes).  You could add sexual behaviors, such as the “chain-letter” problem in the male homosexual community and HIV.  That aspect is today Themuch less than it was in the 1980s and early 90s, but still, modern successful clinical management of HIV can with protease inhibitors can cost about $60000 a year, or maybe $3 million in the lifetime of a young adult male.  You can also add sporting behaviors that have general social approval, like playing football and concussion risks.

Then, there is gender.  In purely economic terms, gender is the ultimate pre-existing condition.  Women have childbirth expenses and men, literally do not.  Women live longer than men, and their eldercare is likely to cost more (although today custodial care in old age is not normally covered by Medicare but may be covered by long term care insurance, which women are more likely to “use” than men).  Within families, generally husband and wife regard pregnancy as a joint experience and cost.  But in a total insurance pool, childless people would contribute premiums to pay for “other people’s children” (“OPC”).

The next place where “moral hazard” comes into play is workplace benefits, especially the push for paid family leave.  I’ve noted before that it is more “egalitarian” to offer parental leave to both parents than only maternity leave (which is all Trump wants to offer).  Most tech companies offer parental.  It is even more “egalitarian” to include adoption leave, and eldercare leave for caring for parents.  All of this costs a lot (I like charging another insurance premium deduction and making it at least contributory, so workers have to understand what it going on – rather than making employers (or “shareholders”) foot the entire bill out of anti-capitalist sentiment).  A benefit that most workers would eventually use becomes less a “moral hazard” situation.  But part of the paid leave problem is that when someone is out, other workers often do their jobs (even being on call for production problems in the I.T. world) without any more pay, often incurring personal sacrifices and expenses themselves.  Obama has been trying to fix this with new rules about overtime pay for salaried workers, but Trump is likely to roll that back.  But in the worst situation, a single or childless person bears personally some of the cost for a married co-worker’s sexual passion (as in “the Song of Solomon”).

There are other examples of moral hazard, as in finance, with the “securitization” of so many financial instruments (like mortgages), leading to the hiding of downstream risks and unsustainabilities, contributing to the subprime mortgage meltdown and then the financial crisis in 2008.  The bailouts amounted to the processing of moral hazard.

Although not usually viewed in an economic sense, we can relate other issues, like past military conscription (and the deferment history) as “real” moral hazard.  Like it or not, one’s own life (and assets) become behind-the-back bargaining chips for politicians to play.  Likewise, calls for volunteer work often involve a spontaneity that resists examination of the serious risks one is called upon to take to benefit others, and this brings us around from traditional economics to social capital.