Mass Health Care
The elected leaders of Massachusetts have come up with a novel solution for the vexing problem of paying for health care: abolish the laws of arithmetic. Their new plan is a perfect illustration of what happens when politicians approach a problem unconstrained by reality.
The plan includes tax incentives and penalties for employers and individuals to get everyone covered by a health-care policy. It also promises affordable health insurance for people with modest incomes, under a program yet to be negotiated between the state and private insurance companies. Nevertheless, three numbers stand out: $295, the annual penalty per worker a company must pay to the state if it does not provide health insurance; $0, the deductible on the typical state-subsidized health-insurance policy under the plan; and $6,000, the average annual expenditure on health care for a Massachusetts resident....
The question is this: What insurance company will provide coverage with $0 deductible, at an annual premium of $295, for someone whose health care costs on average $6,000 a year? The numbers imply losses of over $5,700, not counting administrative costs. To subsidize zero-deductible health insurance, state taxpayers might have to pay out about $6,000 per recipient.
There is no reason to expect firms to rush to offer a policy to uninsured employees. It makes more sense for them to pay their $295 penalty and hand the health-insurance problem back to the individual -- and ultimately to the taxpayers of Massachusetts.
I don't know enough about the issue to judge whether Kling is right (but as a long-time reader of his blog, I can attest that Kling is a smart guy) .
For the opposite point of view and more information on the bill, click here.
Update: Economist Tyler Cowen has a more favorable reaction to the plan than does Kling:
To me the Massachusetts plan sounds messy and fragmented....That all being said, the Massachusetts plan is better than I would have expected. I am not convinced that the plan will work out badly, at least relative to feasible alternatives.