Health Affairs ran a couple of partisan analyses last week. Joseph Antos, of AEI, Gail Wilensky, former Bush 41 HCFA administrator, and Hans Kuttner labeled the Obama plan as excessive tax and spend socialized gulag regulation.

In the other analysis, four liberal academic wonks -- Thomas Buchmueller, Sherry A. Glied, Anne Royalty, and Katherine Swartz -- derided the McCain plan as the counter-productive ravings of a right wing nutjob. OK so they didn’t exactly say that, but you get the message. No surprises here.

The McCain plan is so far out of the mainstream that, when Bush proposed something very similar in 2006, he could not even get it introduced into a Republican-controlled Congress. Obama's plan is a wishwashy centrist Democrat plan that doesn’t even pretend to get to real universal coverage and ignores the fact that the vast majority of Democrats prefer a straight single-payer plan (and so does he when scratched hard!).

So who does Health Affairs chooses to create a middling compromise between these two?

It chooses Mark Pauly, the only leading academic health economist among the Ivy League elite who’s a paid up member of the right-wing free-marketeer club. Here’s what I wrote about Pauly in a much longer article about Malcolm Gladwell a while back:

He makes a lot of the influence of Mark Pauly. Pauly is a complete idiot respected health economist at Wharton, who earnestly believes both that the individual market works well for 80% of the people forced to be in it and is therefore OK, and that the reason we spend so much money on health care in America is a result of the fact that the rest of our economy is so dang efficient. (Both in serious studies published in Health Affairs -- I shit you not). And his article on moral hazard is supposed to be the most influential ever published in the health policy literature, and that's why the right has bought into it.

Since then there’s been a Health Affairs article where Pauly—sitting in his risk-free tenured position at U Penn with great group health insurance—provided data that showed that the individual private insurance market was egregious and discriminatory in the way it did its risk pooling. But he essentially declared that private insurers were OK because if they were any good at their jobs they could have been even more egregious and discriminatory in their risk pooling!

Of course in reality he missed the behavior of health plans in that individual market place where they showed themselves to be very good at being discriminatory by retroactively kicking out individuals who were poor risks. Luckily for the rest of us Lisa Girion was paying attention.

So now Pauly is the moderate in the middle? That defies belief, but it’s worth taking a cursory look at what he’s says. He of course dismisses single payer, and sets up a fake dismissal of a counter-weight which forces everyone moves to HDHPs and HSAs—even McCain isn’t crazy enough to suggest that (especially not after last week!).

The bit that I find most interesting is when he attacks Obama for advocating pay or play—and for his desire to keep employer-base health insurance around. Now (along with Maggie Mahar channeling Uwe Rhienhardt) I’m no fan of employer-based health insurance, but Pauly’s reasoning reminds me of another smackdown I issued a while back. He says:

There is considerable confusion (from an economic perspective) among policymakers, employers, and workers about how employer-sponsored insurance really works. The economic analysis of employment-based benefits is as clear in economic theory and empirical work as it is muddled in the public debate: theory and econometric studies both say that workers pay for the majority of health insurance costs, through lower money wages as well as through explicit premiums.

SNIP

The Obama plan, in contrast, generally seems to view employer payments as do many employers: as the employer's money, which would otherwise become part of profits if it were not paid out for health insurance.

SNIP

In the tragic paradox of health reform (as illustrated most recently in Massachusetts), substantive employer mandates kindle fierce employer opposition, even though, according to economics, employers are not the major stakeholders but are primarily conduits for payment for workers' health insurance.

This is bunk.

In Paulyworld any time a union wants to increase health benefits, the employer happily does it and correspondingly reduces wages. In Paulyworld the proportion of corporate income extracted for profit and returned to shareholders (and executives) is constant.

In reality Wall Street will tell you that the proportion of revenues going to corporate profits increased dramatically in the early to mid 2000s while the share allocated to employees’ wages fell. Of course that’s the continuation of a pattern where real wages for the vast majority of Americans have fallen over the past 30 years while corporate profits (and the “wages” for those that own corporations) have dramatically increased. The proportion of profits to revenue matters because it dramatically impacts stock prices, and stock prices determine how senior corporate executives and shareholders get paid. So for Pauly to tell you this doesn’t matter is just not true. Which is why in the real world disputes over wages and health care benefits are such a big issue.

Pauly and the other theoretical economists (including the one I ripped a few years back) will tell you that this allocation will sort itself out in the long run. I’ll just remind him of what a rather greater economist said about how we’d do in the long run.

Give him his due, Pauly does say one sensible thing about the politics of McCain’s proposal to remove tax deductibility on health benefits. The Democrats are rightfully calling that a tax increase on some people (not that I’m opposed to that!)

The most obvious problem is the questionable political attractiveness of a proposal to abolish a popular upper-middle-class tax loophole, one that delivers more than $200 billion a year in avoided taxes, primarily to higher-wage Americans. It might be preferable to begin by capping the exclusion with a cap that does not grow as fast as premiums, and thus gradually withdrawing the subsidy

Funnily enough that was how Maggie Thatcher got rid of mortgage tax deductibility in the UK. But when comparing the segmentation strategy that McCain envisages, or the closer-to-universal pooling concept of Obama, it’s not hard to guess where Pauly ends up.

My judgment is that community rating is inferior to the combination of guaranteed renewability and high-risk pools, assuming the latter could be subsidized sufficiently, with financing from general revenue taxation, but that the Obama-proposed coverage of high risks through what is effectively free reinsurance also has merit. Some combination of all three desirable features might be best.

<Sigh…>

Perhaps a compromise would have guaranteed renewability for people renewing coverage, while new buyers from a given insurer (whether coming from group insurance or uninsurance) would face three corridors, depending on how much risk differs from average: a corridor where risk rating would be permitted for people of moderately-above-average risk, a corridor where community rating would forbid further premium increases, and a corridor where much higher risks are referred to a well-subsidized high-risk pool.

This needs serious parsing. Pauly’s basically OK trusting segmentation “corridors” in a separate-but-equal mode where the really sick are going to be sent off to risk pools. We know two things about those risk pools.

1. As set up currently they do not work and provide incredibly expensive limited coverage to far fewer people than need them.
2. There is no proposal in the McCain campaign (or it seems in the Pauly doctrine) for how to change that fact

It will also be important to ensure that regulation intended to limit risk segmentation not be used as a subterfuge to disqualify less generous plans that special interests (provider groups, public health advocates) do not like

Now Pauly finally he says something I can agree with. We should indeed be cautious about the ability of providers to gouge the system—after all they’ve had 43+ years  practice at it.

Unfortunately Pauly neglects to notice that those nations which have succeeded in avoiding the “generosity” of the public’s largesse to the heath care system to the extent we’ve seen in the US, have done it precisely because they use one integrated risk pool, or a very close approximation of the same thing (e.g. in Holland). That pooling prevents those more advantaged from cutting those “separate but equal” groups adrift in their leaking lifeboats—as happens in programs for the poor here (to wit Medicaid). That’s why Ted Kennedy is so determined to keep everyone in Medicare, and that’s why the rest of the world believes in some variant of single pooling.

But to be fair, anyone reading the name of the author here would know what we were going to get and would know that it would not be a sensible proposal, but instead a “compromise” twisted by Pauly’s peculiar view of the health insurance system. At best we would we might have expected a “lets’ report both sides” story similar to what most media outlets do — even though one side is clearly operating on the fringes of both political and economic reality (and that’s not to say Obama is that much better).

The real question is why Health Affairs chose Pauly, rather than a sensible middle of the road academic, to write what could have been an important piece?