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The Behavioral Economics Bluff



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On the homepage today, Jim Capretta and I take up an aspect of the Supreme Court’s Obamacare ruling that liberals have yet to confront. I wouldn’t call it a silver lining—I think the case was wrongly decided, and its consequences will not be positive—but I do think it should force the Congressional Budget Office to provide a much more realistic score of the law’s effects when it completes its post-SCOTUS re-score next week.

Simply put, the system of insurance regulations set up by Obamacare was always bound to lead to a meltdown of the health-insurance industry. It gives healthy people no reason to buy insurance until they get sick—why waste the money if you can just get coverage for the same price when you need it? Obamacare’s designers acknowledged this problem, and claimed to have solved it through the individual mandate: If you’ve outlawed the incentive to buy coverage, just outlaw the decision not to buy it. But the politics of the mandate were always tough, and Obamacare’s architects couldn’t possibly set the penalty for violating the mandate high enough to have it actually create an effective incentive to drive young and healthy people to buy into the ridiculous new system. It doesn’t even come close.

Obamacare’s champions can do the math too, but they insisted that even though the mandate makes no more economic sense than the system it was set up to save, it would work anyway because it was a legal obligation to buy coverage and Americans tend to do what the law requires us to do. This was always a very dubious assertion—very little of the social science showing that people often obey laws even when penalties for violation are minimal actually applies to the way this particular mandate was designed. But the assumption was an important part of CBO’s score of the law.

It is an assumption that can no longer be sustained in the wake of the Supreme Court’s decision last month. Whatever you think of the Chief Justice’s opinion, it did say that the mandate should not be understood or presented as a legal requirement. “The Federal Government does not have the power to order people to buy health insurance. Section 5000A would therefore be unconstitutional if read as a command,” Roberts wrote. It’s just a tax on the uninsured.

So if CBO’s notion that “nearly every resident of the United States will be required to have health insurance coverage” under the mandate (and its reliance on the behavioral economics of such a requirement) is no longer sustainable, the agency will have to re-score the mandate as far less effective than it did the first time, and therefore to score Obamacare as leaving significantly more people uninsured, driving premiums far higher, and costing the taxpayer more. Will they in fact do so? We’ll find out next week.

More here.



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