Health Care and Freedom

One of the many objections to President Obama's health care reform law echoed philosophical beliefs rather than explicitly appealing to empirical evidence; the refrain is that Obamacare is a government takeover of our health care system, and as such, infringes on our freedom. While the reality isn't quite that gloomy, the law does significantly increase government involvement in health insurance - through subsidies, Medicaid expansion, and new regulations for health care providers and insurers.

In a recent column, Paul Krugman argues in his usual lofty tone that these concerns are little more than typical conservative attacks, trying to dismantle the benefits that the underprivileged truly need. Indeed, Dr. Krugman flips the conservative point around in defense of Obamacare:

Over time, as people come to realize that affordable coverage is now guaranteed, it will have a powerful liberating effect.

This line of reasoning argues that those at the bottom rung of the income ladder, particularly those stuck in a job because they fear losing health care coverage, are far from free now. Insuring access to affordable coverage liberates people to make life decisions - such as changing jobs - without worrying about losing the valuable (and possibly life-saving) health coverage. The solution is, of course, to subsidize expansive, one-size-fits-all coverage for the poor-to-middle-income population.

There are, of course, merits to this argument. However, the reasonable conclusion is far from where Dr. Krugman arrives.

Addressing Obamacare within the context of freedom - particularly freedom to work where you please - requires going back half-a-century to the Economic Stabilization Act of 1942. This Executive Order, signed by FDR, forcibly "stabilized" wages and salaries, preventing companies from raising or cutting workers' salaries (it explicitly excluded insurance from this regulation). So, in order to attract workers, companies began offering health insurance and deducting its cost from their taxes as they did with wages. 

Ironically, it's precisely this situation that creates what economists call (and what Obamacare would fix, according to Dr. Krugman) "job lock." When health insurance coverage is contingent on a particular job, an employee would be less likely to leave that job for another that may not have the same level of coverage, if any. Because of this, workers can be stuck in a situation with a job they'd like to leave, but are unable to because they would lose their health care coverage (this is especially a problem with lower-income households that may not qualify for Medicaid).

Dr. Krugman's reasoning is that because Obamacare effectively creates a market for nongroup health insurance (by mandating coverage and providing subsidies), people are liberated from having to stay in a job simply for the health coverage. This is certainly one way of looking at it, and it's very possible that Obamacare may marginally remedy job lock.

Let's consider another perspective, however. If the goal was really to "liberate" people from job lock, a more effective and direct approach would be to eliminate the very deduction that creates job lock. Not only would this nullify the incentive to remain at a job because of insurance coverage, it would likely increase actual wages as companies would shift compensation away from benefits and towards salary. With this extra money, along with basic reform to create a truly national health insurance market (think Obamacare exchanges, but on a national rather than state level, with one set of fairly unobtrusive regulations for the country as a whole and a focus on catastrophic coverage paired with HSAs), individuals could very well purchase coverage that is appropriate for them without the massive subsidies under Obamacare.

Under this second perspective, people have more money in their pockets at the end of the day, have more control over their health insurance, and are free to work where they want without fear of losing health insurance.

While we don't yet know exactly what impacts Obamacare will have, portraying it as liberating workers is at best a stretch. It merely substitutes reliance on a job for reliance on government subsidies - not exactly "liberating." 

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Rhetoric and Reality—The Obamacare Evaluation Project: Cost
by Paul Howard, Yevgeniy Feyman, March 2013

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