Snake Oil by Government Decree

Massachusetts has, unfortunately for its citizens, decided to force them to buy overpriced health insurance for themselves and subsidize it for those who cannot afford it outright. The Ayn Rand Institute correctly pointed out today in a press release that the new plan is a massive violation of individual rights.

(1) [The plan] violates the rights of individuals, who will be forced to buy health insurance even if they don't want to.

(2) It violates the rights of employers, who will be forced to offer health insurance to their employees or pay them a $295 annual fee.

(3) It violates the rights of taxpayers, who will be forced to foot the bill for other people's health insurance.

Even the most superficial amount of consideration reveals that this is a prescription for massive failure -- consistent with the nature of any systematic violation of individual rights. Let's take a quick look for ourselves.

The program will be very expensive at the outset because it fails, of course, to address any of the problems (all caused by government regulations) that have caused medical insurance rates to skyrocket in the first place. One fawning article basically admits as much.

The initial projection is that once the program is fully running, the premium subsidies for low-income families will cost $725 million a year. The Bush administration pitched in by allowing the state to apply federal Medicaid funds toward that bill. But if premiums rise faster than expected, the state still might be unable to afford sufficient subsidies to keep insurance within reach of lower-income families -- especially since it has not dedicated any specific source of revenue, such as a cigarette tax hike, to the plan. [bold added; Thanks, Mr. Bush, for making us all pay for Massachusetts's stupidity.]

This means that, unassisted by the feds, Massachusetts, with a population of about 6,350,000 will have had about $115.00 of additional per capita tax burden, on top of its $2,815 per year (already the nation's seventh-highest) -- for just the low-income subsidies! If costs remain steady. But remember: This plan does absolutely nothing about why these costs are rising!

The longer-term danger is that the program might grow unaffordable not only for individuals, but for the state, if healthcare costs keep rising at their current rate.

Another writer, Sally Pipes, notes that this plan has already been tried and has already failed.

An innovative approach would deregulate the individual market and allow insurance companies to design policies that are attractive to the non-needy uninsured.

In a blast from the past, Massachusetts law does just the opposite. It protects all existing government mandates and regulations while creating a bureaucracy to distribute new taxpayer subsidized insurance products that have no deductibles. This is the same health plan design threatening General Motors Corp.'s viability and bankrupted its suppliers. [bold added]

And part of why this will happen occurs earlier in the first article.

[T]he plan advances just as many priorities of the left. It includes a significant government role through the subsidies to poor and working-poor families. Though the initial payment would be modest ($295 a year), the legislation would require employers not currently providing insurance to contribute to care for their workers. Most important, through the new state exchange it would protect the idea that insurance should share risk between the young and old, the healthy and sick.

In her article, Sally Pipes cuts through the left-wing feel-good rhetoric to explain what "share the risk" really means.

Individual health insurance is not always a good deal in Massachusetts, thanks to state-imposed community rating regulations that require companies to charge the sick and healthy the same rates. The result: Some people elect not to purchase it.

In other words, if you live in Massachusetts and are healthy, if you are stupid enough to buy health insurance, you will basically pay the premiums of someone who is sick. No wonder they're having to force people to buy such plans!

The plan sounds -- except for some unimportant details about its funding and implementation -- very similar to a plan, for "Universal Health Care Vouchers" (UHVs), I blogged long ago. Most of the criticism I leveled at that plan applies to the Massachusetts plan. For example, such plans, by promising government subsidies, remove the restraint prices place on demand and inevitably lead to government rationing.

(Fellow Objectivists may entertain themselves by glancing back at my old blog entry and seeing that I have been able to simply substitute new terms (bracketted) into the same argument I made then. UHVs and this plan are, after all, simply two specific examples of the same general concept. I am merely supplying a new set of specific measurements.)

[S]uppose people start visiting the doctor at the drop of a hat since they're only out a copayment [beyond their high, state-mandated rate, and they understandably feel entitled to "get their money's worth".] Or suppose that nothing is done about the malpractice crisis. Or drug liability. What then? Either the [rates and taxes for subsidies] will be raised (even for those who don't milk the system for all it's worth) or services will have to be cut (again, for everyone). ...

...

And speaking of what ["risks" get "shared"]: By what standard is something judged worthy of coverage? Would the [state] mandate coverage of life-saving gastric bypass surgery for the morbidly obese or cancer treatment for heavy smokers, passing the costs of their unhealthy habits on to the rest ... ? If not, why not? ...

Because this plan is supposed to be [nearly] "universal" and the only way to make this happen is for the government to confiscate some people's money to pay for other people's medical care, whether that means visits to the doctor for mild headaches or a lung transplant made necessary by a lifetime of three packs a day. Up to a point, that is: The amount people are willing to be [forced to pay for their own premiums and be taxed for those who cannot. The end result of a public outcry for a lower premium and tax burden will be a government-mandated reduction in what the premiums will pay for.]

...

There is no free lunch. Medical care, like any other good, exists in limited quantities. As a result of this scarcity, we have a choice. We can allow government functionaries to ration it for us, resulting in lower quality, higher (if hidden) costs, and a loss of control over our own medical decisions. Or we can attempt the real reform of excising the cancer of government control once and for all from the medical industry, giving ourselves individually the best medical care our own money can buy on the open market.

Now that I think of it, there is no essential difference between the plan in Massachusetts and that of Emanuel and Fuchs. The chief differences are merely: (1) exactly when and how you are to part with your money to pay for what the government says you should get for health insurance, and (2) what the bureaucratic agency that decides whether you will get treated for something will be called.

Ironically, just as our nation seems ever closer to nationalizing the medical industry, "the poor", always the supposed "beneficiaries" of such programs, can be seen voting -- with their feet -- against another massive, failed attempt by the government to provide a necessity to all. Blacks and Hispanics across the country are taking advantage of voucher programs whenever they can to flee public schools!

In Minneapolis, public school officials now admit that black flight is a serious problem; the district enrollment is projected to be down to 33,000, from 48,000 in 2000, a 30% decrease, largely due to black students escaping to charter schools.[1] The Washington D.C. school district has lost 10,000 students in five years; 25% of D.C. students are now enrolled in charter schools.[2] A Rand Corporation study of charter schools in Texas and California discovered that in both states black students are significantly more likely to move to charter schools than are white students.[3] Although school choice opportunities are not necessarily snapped up instantly (growth in some voucher programs has been more gradual than originally expected), over time the momentum is unambiguously one of black flight away from public schools.

The ultimate answer to our failing educational sector would be, not vouchers, but outright privatization. However, the mass defection of black customers from "free" schools ought to serve as a lesson to those who think the government should run all hospitals as well.

If, after decades of trying, our government still can't magically provide a good education to many of our children, what makes advocates of socialized medicine believe the government can magically provide medical services? Do they really care? And why should we believe them?
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-- CAV