It Takes A Government

September 5, 2013, 9:11 pm 1 Comment
by Paul Krugman


September 5, 2013, 9:08 pm 15 Comments

It Takes A Government (To Make A Market)

Lots of reporting on the new Kaiser Family Foundation analysis of what we know so far (pdf) about premiums under Obamacare. It definitely looks as if there will be a mild “rate shock” — in the right direction. KFF:



While premiums will vary significantly across the country, they are generally lower than expected.



What’s going on here? Partly it’s a vindication of the idea that you can make health insurance broadly affordable if you ban discrimination based on preexiting conditions while inducing healthy individuals to enter the risk pool through a combination of penalties and subsidies. But there’s an additional factor, that even supporters of the Affordable Care Act mostly missed: the extent to which, for the first time, the Act is creating a truly functioning market in nongroup insurance.



Until now there has been sort of a market — but one that, as Kenneth Arrow pointed out half a century ago, is riddled with problems. It was very hard for individuals to figure out what they were buying — what would be covered, and would the policies let them down? Price and quality comparisons were near-impossible. Under these conditions the magic of the marketplace couldn’t work — there really wasn’t a proper market. And insurers competed with each other mainly by trying to avoid covering people who really needed insurance, and finding excuses to drop coverage when people got sick.



With the ACA, however, insurers operate under clear ground rules, with clearly defined grades of plan and discrimination banned. The result, suddenly, is that we have real market competition.



In an alternative universe, conservatives would be celebrating this good news as a vindication of their views. See, the Heritage Foundation — which actually developed the original version of this plan! — was right! You don’t need single-payer, just a properly set up market system. (For the record, I believe that single-payer would be better and cheaper, and it’s still a goal we should seek).



But in this universe, conservatives claim that creating a real market for health insurance, and making sure that everyone can afford it, is the moral equivalent of slavery.



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