In February, some parents’ decisions not to vaccinate their children caused great hubbub in the United States, fueled by measles outbreaks and a few politicians’ expressions of respect for this choice by “anti-vaxxers.” A natural concern is that lack of vaccination by some degrades herd immunity and makes spread of disease more likely.
Because choosing not to vaccinate harms others—something we economists call a “negative externality”—it justifies government action to encourage vaccination. But in other cases in which a negative externality arises, government action is much less widely accepted as justified. Why the difference?
In a piece titled “Your Right to Skip Shots Ends Where My Kid Begins,” journalist Megan McArdle made the externality-based argument for government action against the anti-vaxxers. “This is the purest case for public health laws: preventing people from putting others at risk,” she wrote. For those who fail to vaccinate their children, with few exceptions, McArdle recommends denial of many benefits, including tax deductions, student loans, entry to airplanes, or access to public schools, colleges, team sports, or municipal activities.
These are stiff penalties indeed, particularly those that are levied on a child for the choices of her parents. But something must be done, because anti-vaxxers inarguably threaten the well-being of others, the logic goes.
And yet, we can identify other negative externalities for which a government remedy would seem to many to be out of place. In The Darwin Economy, Cornell economist Robert Frank, PhD, MA, argues that spending on certain goods by the wealthy can harm those less well off. It does so by raising the bar on what constitutes “good enough,” so that someone’s luxury car (or over-the-top wedding ceremony or globe-trotting vacation or massive house, say) causes me to feel mine is inadequate. Such purchases by the wealthy can tilt the market toward delivering more lavish goods, leaving too few options for those who can’t afford them. Children of poorer parents are harmed when better school districts are inaccessible because their parents cannot afford the homes in them.
What can be done about such a negative externality? Taxation is the economist’s tool in such cases. Robert Frank advocates a progressive consumption tax. George Mason University economist Tyler Cowen, PhD, would target the social media flaunting of high-status possessions and activities by taxing Facebook. But many people would resist such remedies, particularly those who would be taxed. To them, the negative externality of high wealth might not be one that they want to see addressed. That externality is somehow different than the anti-vaxxer externality. How? Which externalities count?
Returning to health care, consider the individual mandate. A rationale for it is that it addresses a negative externality that arises when healthier consumers do not purchase health insurance. Since premiums reflect average costs of the insured population, when healthier and cheaper consumers opt out, those who wish to purchase coverage must pay more. That’s a negative externality: those who opt out will harm others who wish to purchase insurance. In the extreme, the insurance market can unravel, as higher premiums discourage greater numbers of relatively healthier individuals to forgo purchase. This is the rationale for subsidies and the mandate, both of which encourage the healthy to purchase coverage, addressing the externality.
Those that find this argument unconvincing—Megan McArdle among them—point out that the subsidies and the mandate resolve the externality by forcing the healthy to pay part the health care bills of the sick. If we were talking about cable TV bills rather than hospital bills, few would argue the justness of such cross subsidization.
But there’s another justification for the individual mandate. Functionally, it’s just a tax on lack of coverage. Those forgoing coverage are obligated to pay (in 2015) the greater of $325 or 2% of income, unless qualifying for an exemption. One can view this penalty as compensating society in the event one requires emergency care for which one is unable to pay. Using care without payment is a negative externality on others who must pick up the tab. This is another cross subsidy, but we call it “free riding” and it’s widely seen as improper. (In truth, the individual mandate penalty is higher than it need be to address uncompensated care.)
For all that, many are not comfortable with the individual mandate. In The Wall Street Journal, economists Douglas Holtz-Eaken, PhD, and Vernon Smith, PhD, wrote that when it comes to the mandate, the presence of externalities does not justify the imposition of government. Tom Miller, JD, of the American Enterprise Institute argued that “the individual mandate violates core principles of economic freedom, personal choice, and limited government.” Yet, the required provision of emergency care is also an expression of a core, cultural principle and social commitment: we don’t leave people to suffer and die in the street.
All this confusion about how and when to consider externalities in health care is not new. As Donald Herzog, PhD, wrote in a delightful takedown of my profession, “[E]conomists are opportunistic about invoking [them]” and rarely consistent. Here we see that in action. For some, lack of vaccination needs to be addressed; lack of coverage does not. But one could easily make the argument the other way.
Whenever we invoke the notion of externality, we are ultimately relying on some other principle about what sorts of harms we will and won’t tolerate in a pluralistic society. So what is the principle that separates government coercion for vaccination from that for health insurance? It’s not that lack of only one could harm someone else’s health. Degradation of herd immunity and causing others to be priced out of coverage both could do so.
Maybe there’s something intrinsically objectionable about making people purchase a financial product. Maybe we’re more accustomed to following medical advice—like vaccination—handed down by authority figures (usually physicians), so it seems wrong to resist it. Perhaps the personal cost of insurance purchase seems (or is) higher than that of receiving a vaccine that is overwhelmingly regarded as safe. Or maybe that the harms in question—the widespread lack of insurance—are more tolerable than risk of serious harm associated with a loss of herd immunity?
All of that is conceivable, but none of it obvious. Whether it’s one of those principles or something else that distinguishes between vaccination and coverage, it should be articulated and defended. For some, there is a line that separates when externalities do and do not count in health care, but I’d be hard pressed to explain how to find it.
About the author: Austin B. Frakt, PhD, is a health economist with the Department of Veterans Affairs and an associate professor at Boston University’s School of Medicine and School of Public Health.He blogs about health economics and policy at The Incidental Economist and tweets at @afrakt. The views expressed in this post are that of the author and do not necessarily reflect the position of the Department of Veterans Affairs or Boston University.
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