Paul Krugman in his recent column on the role of economic relief policies including extended and expandisve unemployment insurance has an interesting paragraph about leverage:
One last thing: My sense is that Republicans have a delusional view of their own bargaining position. They don’t seem to realize that they, not the Democrats, will be blamed if millions are plunged into penury because relief is delayed; to the extent that they’re willing to act at all, they still imagine that they can extract concessions like a blanket exemption of businesses from pandemic liability.
If unemployment insurance is not extended next week, tens of millions of people will see a massive drop in their standard of living and a massive increase in stress. Parties that control the White House going into an election will be blamed for crappy economic situations. The out party is not blamed even if they are obstructive; that was Senate Majority Leader’s core tactical insight and behavior in 2009-2010. It is a either a massive mis-read of leverage or a nihilistic sociopathy that the Democrats will fold despite receiving massive political benefits from not folding because they give a damn about minimizing pain.
As I read it, I remember what I was writing in October 2017 about the inversion of leverage on Cost Sharing Reduction subsidy funding once insurers did not flee the market as they had more than fully mitigated the risk by Silverloading in 2018:
the piece that has me scratching my head is from the Washington Examiner and a story about Senator Johnson’s (R-WI) willingness to appropriate CSR in exchange for policy concessions from Democrats:
Johnson told the Washington Examiner Friday he hopes to put out legislative text sometime next week on a proposal that funds insurer payments in exchange for reforms to Obamacare. His proposal includes expanding the duration of short-term plans and expanding health savings accounts…
Johnson also wants to let all Americans buy catastrophic plans, not just those under 30 years old as is the practice now.
He seems to think that Democrats need to offer policy concessions to protect the individual market. I think he is wrong…
It is a shift from a narrowly structured, tightly means tested subsidy to a more broadly structured, loosely means tested subsidy.
These are acceptable long term outcomes for Democrats and liberals. More people get covered. If there are no 1332 waivers, the coverage expansion is expensive and inefficient. If states use 1332 waivers to subsidize off-Exchange individuals with a reinsurance program, more people will get covered and the spending will be more efficient….
Inaction means, over the long run, more people will get low(er) out of pocket expenses/lower deductible insurance for lower premiums through structured, subsidized exchanges. I think that after a year or two, the expected social contract of what “acceptable” publicly subsidized insurance will move to Gold instead of Silver plans. Lower cost Gold plans and very affordable Bronze plans will increase long run uptake of PPACA insurance among people who earn between 200 percent and 400 percent FPL.
Understanding and projecting out basic policy implications is a key determinant to figure out how leverage plays out. Leverage determines the possibility space. When there is a massive dissonance between actual and perceived leverage, negotiations are likely to be a mess.