NCPA - National Center for Policy Analysis


October 14, 2009

The success or failure of the Massachusetts mandatory health insurance program has been closely monitored as a harbinger of future outcomes for a nationwide move in this direction, but to date, the results have been mixed, says economist Craig J. Richardson.

While the reform seems to have reduced the number of uninsured, it has also created incentives for costs to rise even faster.  Richardson gives a summary of some of the reasons:

  • Massachusetts' expenditures on its health care initiative have been discounted by 50 percent, thanks to matching funds from the federal government, which has encouraged a rapid increase in state expenditures.
  • Growing burdens on businesses have meant that an increasing number are choosing to steer their employees into the state-subsidized system rather than provide health insurance themselves; in addition some will hesitate to expand beyond 10 employees when faced with the cost of providing health insurance or state penalties.
  • Consumers of health insurance over certain income ranges have strong incentives to earn less money in order to qualify for more generous subsidies.

Mandatory health insurance may improve access, but the nut has not yet been cracked to solve the second and now more pressing problem of efficiency and containment.  The case of Massachusetts offers cautionary lessons for the United Sates as the Obama administration seeks wide-ranging reforms that move more in the direction of mandatory health insurance, says Richardson:

  • Keen attention needs to be paid to the distortionary effect of regulations on individual and firm incentives.
  • The need to balance out the costs versus the benefits to society of a subsidized program.
  • The need to recognize the difficulty of creating a subsidized program that does not encourage people to earn less -- ironically the programs get more expensive as the work incentives improve.

Source:  Craig J. Richardson, "Mandatory Health Insurance:  Lessons from Massachusetts," Cato Journal, Vol. 29/2, Spring/Summer 2009.

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