My colleague Igor Volsky has five smart points about Mitt Romney’s new health care proposals, of which I think point two is the most interesting:
Romney would “reform the tax code to promote the individual ownership of health insurance” and “give individuals a choice between the current system and a tax deduction to buy insurance on their own.” He thinks this would create “the best of both worlds” by allowing certain individuals to leave their employer-sponsored health insurance plans and find coverage on the individual market. But this would only entice young healthy workers to buy cheaper but less substantive insurance in the individual insurance plan market place, increasing costs for sicker workers and forcing some to opt out entirely. Among those who would lose their health care are 56 million Americans with pre-existing chronic health conditions. The credits would also fail to cover the cost of comprehensive coverage.
I feel like our political system keeps spinning its wheels around the point. But the issue is that insurance is a matter of pooling risks. It works better if you have big pools. The federal civilian workforce is a really big pool. So is Medicare. So is the entire population of Canada. A typical large private employer in the United States isn’t as good, but it’s pretty big and it works pretty well. In principle, though, the United States should have a lot of advantages. We’re much bigger than Canada and could create a truly enormous integral pool. Things that make it easier for random people to drop out of employer-sponsored pools sound pretty appealing. But if you do it à la Romney (or the somewhat similar John McCain campaign proposal) all you get is even more fragmentation. To make this idea work you need some regulatory measures—exchanges and mandates and risk-adjustment—to turn the individual market into a large pool.
That’s why when Mitt Romney was governor of Massachusetts his health care plan had those features, and that’s why the Affordable Care Act has them.