The Median Voter, the Marginal Consumer, and Obamacare: Why No Politician Competes for the Votes of Patients with Bladder Cancer

On October 30, President Obama gave a now infamous speech celebrating the going out of business of so-called “bad apple” insurers.

According to the President, “before the Affordable Care Act, these bad apple insurers had free rein every single year to limit the care that you received or used minor pre-existing conditions to jack up your premiums or bill you into bankruptcy.”

Only a few days later, Edie Sundby of San Diego wrote a heartbreaking op-ed in the Wall Street Journal describing how Obamacare had forced her health insurer to cancel her policy, which had already spent $1.2 million on her treatment for a rare cancer. She may well go into 2014 without health insurance.

Much has been written about Ms. Sundby’s tragedy. Writing at the Beacon, John Goodman used the case to explain the basic economics of health insurance.

This article will attempt to explain the political science behind the crisis. First, when President Obama asserted that insurers’ could “jack up” individuals’ premiums based on individual health status, he was absolutely wrong. Every state guarantees renewability of premiums for each beneficiary at the same rate as everyone else in the risk pool.

This is why Ms. Sundby was happy to keep her policy. Her insurer did not “jack up” her premiums when she was diagnosed with bladder cancer. Her premiums increased at the same rate as the thousands of other beneficiaries enrolled in that risk pool, most of whom remained healthy.*

One remarkable characteristic of President Obama is that he remains blissfully ill informed of how health insurance worked before Obamacare. Since his 2008 presidential campaign began, he has described the market for individual insurance wholly inaccurately.

And yet he has not suffered for it (until now). I think the explanation is that the median voter, whom every successful politician seeks, is also ill informed about individual health insurance. This is what we call rational ignorance: Most Americans (especially those who vote) have expected health insurance as a job-based benefit, so they do not bother to educate themselves about individual health insurance.

So, a politician can say whatever nonsense he wants about it, with little risk of being called to account by those whose votes he seeks. But the campaign for the median voter also bears a human cost: The median voter does not have stage IV bladder cancer. He or she is largely healthy—maybe concerned with blood pressure, cholesterol, or a little overweight, but not thinking about serious, catastrophic illness.

This also explains why it is impossible for politicians to design health insurance that operates as real insurance: covering expensive accidents or life-limiting diseases. It simply would not bring in the votes. So, they emphasize preventive care: free prescriptions or birth control.

There are a lot of things that politicians should not be in charge of: Health insurance is near the top of the list.

(*Technical note: This is not a perfect solution. In any risk pool, there will be tendency for beneficiaries who remain healthy to drop coverage and opt into a new policy with a different design. This leaves the sicker beneficiaries in the old risk pool, causing premiums to increase at a higher rate. Insurers stop marketing the old policy. In insurance economics this is known as the “closed block” problem. There are various ways to address it. In California, once a block is closed, an insurer must allow all the remaining beneficiaries to enroll in one of the two most popular individual policies that they are offering, without underwriting. Of course, the best solution would be a market for insurance against being re-underwritten, which is described in John Goodman’s Priceless.)

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[For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.]