Monday, March 16, 2009

Rule Number 1: If You Subsidize Something, You Will Get More of It

Three years after enacting its universal health "insurance"* law, Massachusetts is trying to figure out how to rein in healthcare costs.

To review, the law requires state residents to have health "insurance" and subsidizes premium payments to make compliance possible:

Massachusetts achieved its high coverage rates by mandating in its landmark law that almost every resident have health insurance, and that all but the smallest businesses make some contribution toward their employees’ costs. Those who do not enroll but are deemed able to afford insurance can be fined up to $1,068 in the 2009 tax year.

To make the mandated insurance affordable, the state subsidizes premiums for those earning up to three times the federal poverty level, or $66,150 for a family of four.

By subsidizing premiums, the state made the cost of healthcare lower. Therefore, people have consumed more of it:

The state expects to spend $595 million more on its health insurance programs this year than in 2006, a 42 percent increase. But** about 432,000 people have gained coverage, leaving only 2.6 percent of the population without insurance, according to a recent state survey.

So tell us again, How is universal coverage supposed to save money without limiting what services people can and can't have?

Hat tip to Tyler Cowen at Marginal Revolution.

* As many people have pointed out over the years, "insurance" is a misnomer for what really are third-party-payer health plans.

** An entire book could be written about the editorializing built into transition words like "but." "Costs have gone up, but more people are covered." That's nice, we think to ourselves, the higher costs (a bad thing) are balanced by more coverage (a good thing). To be accurate, however, shouldn't that "but" be a "because" or at least an "and"?

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