NCPA - National Center for Policy Analysis


April 10, 2006

Massachusetts' new plan to solve the vexing problem of paying for health care includes tax incentives and penalties for employers and individuals to get everyone covered by a health-care policy. It calls for a $295 annual penalty per worker that a company must pay the state if it does not provide health insurance and a $0 deductible on the typical state-subsidized health-insurance policy.

There are problems with the plan, according to Arnold Kling, an adjunct scholar with the Cato Institute:

  • No 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.
  • Neither can we 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.
  • Economically, consumers who face deductibles of $0 have no incentive to restrain health-care spending; if more Massachusetts consumers enjoy coverage without any deductible, then the average per-person expenditure on health care of $6,000 seems likely to go up.

The problem of paying for health-care coverage, which politicians are declaring they have "solved," is really just beginning, says Kling. The only way to make zero-deductible health insurance available at low cost is with a large subsidy. Only when the size of the necessary tax increase becomes clear will Massachusetts' leaders learn the laws of arithmetic.

Source: Arnold Kling, "Bill of Health," Wall Street Journal, April 7, 2006.

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