Holding the Bag

The Irish decided to impose a 33 cents tax on those plastic bags that retailers use. I presume this was in part a sin tax, in part an attempt to tax the externalities created by the bags, and in part a bit of stunt. The end of the story is that it’s wiped out the use of plastic bags, shifted social norms about bag usage. It’s a fascinating story about deciding to change the way a society behaves; making it acceptable to shun those who exercise their freedom to use plastic bags.

For some reason that story is currently slotted in my mind with the health care debate’s latest point of discussion.

The question at hand is should we put everybody into the system, or should we allow people to opt out. Allowing people to opt out would presumably create incentives for people to game the system. Or putting it another way it would allow people to gamble that they aren’t going to need health care during the next time interval.

Boffins think that this single choice would have a sharp effect on costs. Plans were we all join look likely to cost us each about $2,700 a year, while those were we allow gaming would cost $4,400 per year. Intuitively that sounds about right – you just take a guess on how many people would decide to take a swag at getting away with no healthcare, say 25%, and then you figure that group is likely to be somewhat less likely to need care, say 60% less; an you get similar numbers.

So that’s 63% more expensive or additional $147/month. Our faux progressive funding system pushes most of the cost of these social programs onto the middle and upper middle class so you can multiply that as you think is appropriate. But that class struggle is less interesting to me today.
What this highlights is how it creates two classes: those who decide they want to take the gamble, in one class, are costing everybody who decides to join, the second class. It is an interesting case of creating a clear cost to the majority group by allowing a minority a freedom. The boffins think that minority is pretty large. Will those who join will shun those who take the gamble? Will the system create shifting social norms, like the Irish experience with the bags, where it becomes unacceptable behavior to take that gamble?
There is another interesting take though. An intertemporal one. I presume that many of those who might decide to take that bet they won’t get sick will be young people. There are plenty of reasons to think that. Young people tend to be less able to afford the insurance. They tend to be less risk adverse. They tend to be healthier. They tend to have less common cause with large institutions. Over time a person is two people; a young person, and then latter a older person. The first of these is raising the costs of the second one.

Actually there are really three people or more people in each individual, since for example, what makes for a healthy young person is a healthy childhood. So the healthy young person that opts out has his head in a bag, selectively blind to both to the past and the future.

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