Obamacare, Rebates, and the “Endowment Effect”

During his visit to UCLA to give the Marschak Lecture (which was terrific) Robert Frank asked me a question for which I didn’t have a very good answer. Bob reminded me that during the Obamacare debate I predicted that the law would become much more popular once it passed, because the beneficiaries would feel a stronger stake in keeping the new benefits the law had given them than they felt in gaining those new benefits initially: an example of the well-known “endowment effect.”

That doesn’t seem to have happened, perhaps because the benefits are still mostly prospective. The main reform – the availability of community-rated insurance without existing-condition exclusions to everyone though the exchanges – doesn’t arrive until 2014. So a Supreme Court decision striking down the law wouldn’t mean taking something from people that they already have, but rather depriving them of something they might have expected to gain.

That’s not, of course, entirely true. Some of the benefits have already arrived, most notably the coverage of people up to 26 under their parents’ health insurance: especially valuable given the current state of the post-college labor market. If Roberts & Co. strike down the law, some hundreds of thousands or millions of twenty-somethings will suddenly find themselves in the market for individual insurance, which is a very bad place to be, and they and their parents are likely to be angry about it.

The same is true of seniors with Medicare Part D coverage who will once again face the “donut hole” without the substantial discounts provided in the bill.

A marginal case is the $1.3 billion in rebates due to about 15 million people this August from insurers that paid out less than 80% of their premiums in medical expenses. Insofar as those people know they have checks due them, they’re likely to be outraged if five oligarchs in black robes take those checks away. But I doubt that many of them are aware of what they have coming. If I were in the Obama Administration, or a supporter of reform, I’d want to spread that knowledge as widely as possible among the beneficiaries.

The more people regard overturning the law as taking from them something they had, the more uncomfortable will be the position of John Boehner in defending the idea that no part of Obamacare should be retained.

Given how fanciful the arguments are that a penalty for not buying insurance is unconstitutional while an entirely equivalent tax on being uninsured would be uncontroversially constitutional, I assume that Roberts and the rest of the Tea Party caucus will be deciding the case entirely on its political, as opposed to its legal, merits. They will be asking themselves whether overturning the whole law, overturning the mandate and leaving the rest intact, or making the correct legal decision would be more advantageous to the larger project of placing the country under Republican rule for the benefit of the top tenth of one percent of the income distribution.

If that’s right, an aggressive campaign to tell people about those rebate checks might influence not only the political consequences of the Supreme Court decision but also its content.

[Cross-posted at The Reality-based Community]

Mark Kleiman

Mark Kleiman is a professor of public policy at the New York University Marron Institute.