Opinion: Daily Journal

Good, Bad, and Really Homely

RALEIGH – David Hyman, a University of Illinois professor of law and medicine, has laid out well the good, the bad, and the ugly of Massachusetts’ celebrated new health-care initiative. I’ll recommend his new paper on the topic with this warning: the ugly part is pretty darn homely.

North Carolina policymakers should be paying close attention to the unfolding of heath care reform in Massachusetts. For one thing, then-Gov. Mitt Romney and the Democratic legislature on Beacon Hill got one very important thing right: they recognized that the current “private” health-insurance market is structured the way it is in large part because of government tax policies, policies that disproportionately benefit large companies and households with above-average incomes.

Obviously, any exclusion of thousands of dollars from someone’s income-tax liability is more valuable to those who have an income-tax liability, who pay higher tax rates, and who work for firms with the scale and resources to take full advantage of the tax benefit. The Massachusetts plan extends that tax benefit to lower-income folks and employees at small firms by creating a market exchange, the Connector, where they can go to purchase a health plan of their choice with pre-tax dollars. Existing subsidy dollars are also redirected to focus most government assistance to purchasers with low incomes.

Unfortunately, the value of this good idea of equalizing the tax treatment of purchasing health plans for all Massachusetts residents was more than offset by the negative consequences of retaining benefit mandates on the health plans, making participation mandatory for both individuals and firms, and building rules into the system that will likely escalate the cost to taxpayers massively in the coming years. Hyman points out in his paper that while Massachusetts officials projected a $1.4 billion annual cost for the first three years of operation, no additional cost estimates were provided – or asked for by the state lawmakers approving the plan (!!) Hyman writes:

Have you ever heard of a government program that spent $1.4 billion per year for the first three years, and then delivered the same benefits in the fourth year with no additional funding? Particularly when spending will likely exceed revenue in the third year by almost $170 million? Me neither.

The cost escalation will comes largely from the fact that, perhaps despite the best intentions of Romney and some framers of the plan, the governing board has made a number of decisions about benefits and program design that will keep private insurers from offering true insurance – high deductible, no-frills coverage for catastrophic illness. Thus the program will perpetuate the heavily regulated, low-deductible model that many young people, not just the poor, would never find valuable enough to pay for, and indeed might chose not to buy under the individual mandate (they’ll pay the “penalty” of somewhat higher taxes instead, because the penalty will be cheaper than the cheapest regulated health plan).

Other than North Carolina’s advocates of full-scale health-insurance socialism, who don’t much care about this, state policymakers will need to be careful not to enact “reforms” that have, as their inevitable result, the unraveling of private markets for health care savings, insurance, and provision. There is nothing unique about health care that makes it amenable to successful socialism. That is a contradiction in terms. Socialism may sometimes look as if it is less expensive (often because people end up pay the cost in wasted time and foregone care rather than dollars), but reality inevitably intrudes.

I guess we’ll soon see the reality of the Massachusetts health-care initiative. Probably won’t win the public-policy equivalent of a beauty pageant.

Hood is president of the John Locke Foundation.