How Stupid Do You Have to Be to Work for Cato?

Yesterday I linked to a Paul Krugman column titled “California Death Spiral,” in which Krugman explains succinctly how insurance markets collapse. In short, “If too many healthy people decide that they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This, in turn, leads more healthy people to drop coverage, worsening the risk pool even further, and so on.” If you’ve been paying attention to the health insurance issue, this is fairly self-evident.

Now Michael F. Cannon, the Cato Institute’s director of health policy studies, responds by saying that Krugman doesn’t understand insurance markets.

Cannon’s argument — First, he says that Krugman is unfamiliar with the work of University of Pennsylvania economist Mark Pauly. According to Cannon, Pauly has shown that “health insurance markets are way ahead of politicians — and way ahead of economists — in solving the problems that bedevil health insurance markets.” As proof of Pauly’s genius, Cannon links to an abstract of an article Pauly wrote in 1995 about “Guaranteed Renewability in Insurance” and to a description of a book on risk pooling that Pauly co-authored and which was published by the American Enterprise Institute.

Yes, I’m … so not persuaded. But this is a common trick of rightie think-tank fellows. If they don’t have an actual argument, they pull the name of some Authority Figure out of their butts and claim he has an argument. We don’t know what that argument is, but we’re assured it exists.

From here, Cannon goes on to say a colossally stupid thing:

Healthy people dropping coverage would not lead to across-the-board premium increases in California, because California allows markets to set premiums. Only when the government imposes the kind of price controls that Krugman wants does an “adverse selection death spiral” follow.

This entire debate came about because Anthem Blue Cross and other insurers in California are imposing huge premium increases on their customers, and they are doing this in spite of the fact these companies are making substantial profits. As Cannon says, state regulators in California have very limited power to control rates, so insurers can pretty much charge whatever they feel like charging.

There’s your “free markets,” Mr. Cannon.

Note that Krugman did not argue that the premium increases are being caused by a “death spiral,” but that Anthem Blue Cross claims that’s why it’s raising its rates. So either there is such a death spiral in spite of the lack of regulation in California’s insurance markets, or Anthem is price gouging. Take your pick. Either way, the free market ain’t doing squat for the consumer.

You might remember that Cato is the same pool of geniuses who endorsed the idea of insurance insurance as the solution to the health insurance crisis. If you missed it, the plan is to give insurance companies a completely free hand to risk-rate premiums, so that as people get older and/or sicker their premiums would go up. And to keep you from being priced out of health insurance if you get sick, you’re supposed to take out a separate policy of “health status insurance” that will insure you against catastrophic increases in your health insurance. (No, I’m not making this up. Read Cato’s insurance insurance manifesto here.)

This brings me to the question asked in the title of this post — how stupid do you have to be to work for Cato? Because, based on his own arguments, I conclude that Michael F. Cannon is either (a) a complete idiot, or (b) paid to churn out verbiage that has the approximate look and feel of reasoned arguments to defend positions that are really matters of religious faith (i.e., “free markets” fix everything).

I’m leaning toward (b), because Cannon’s invocation of the economist Mark Pauly is a classic example of the “appeal to authority” logical fallacy. We have no way to know how Pauly concludes (assuming that he does) that health insurance markets are already at work solving the problems of the health insurance markets, and apparently have been doing so since 1995. And to pull this trick to discredit a Nobel Prize-winning economist takes cojones.

It’s also a signal to anyone with a brain that Cannon doesn’t have a real argument. But I’m sure he’s very persuasive to people who want to remain loyal to the Magical Free Market doctrine. This is Cannon’s real role — not to provide a real argument, because there isn’t one, but to provide something that looks and feels like an argument to give the True Believers something to hang on to.