Friday, April 07, 2006

Mass Health Care

Massachusetts has recently passed a health care plan aimed at achieving nearly 100 percent insurance coverage of its citizens. It has received widespread support among both Republicans and Democrats. In today's Wall Street Journal, economist Arnold Kling takes it on.

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.