Saturday, April 08, 2006

An excerpt from a WSJ article by Arnold Kling, found at Cafe Hayek. Yet again an example of why government just plain sucks at economics:

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. Each of these numbers represents one of the irreconcilable goals of health-care policy:

• $295 represents the goal of affordability. We would like to be able to purchase health-care coverage for $295 a year. If that's what it actually cost, my guess is that the problem of the uninsured would pretty much disappear.

• $0 represents the goal of insulation. As individuals, we would like to be insulated from health-care costs. That is why, instead of real insurance -- which would have us pay for at least the first $10,000 of health care out of pocket -- most of us have health-care policies with much lower deductibles.

• $6,000 represents the goal of accessibility. We want access to the best care that modern medicine can provide, whatever the expense.

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.


Brilliant plan... Unfortunately, wanting to give everyone fantastic and affordable health care doesn't make it possible.

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