Economics of Mandated Health Insurance
By David Henderson
Today’s Wall Street Journal contains an interesting front-page news story about mandated health insurance, focusing on the case of Massachusetts. When Mitt Romney was governor, he pushed through a mandate, with subsidies for low-income people to buy it and taxes for those who refused.
“I can’t use up all of my savings just to buy mandatory insurance,” Mr. Norton says. It’s like penalizing “the homeless for refusing to buy a mansion.”
What a great line. Think of a mansion as health insurance with all the bells and whistles, including a low deductible. (Catastrophic doesn’t cut it: more on that anon.)
The next year, premiums rose to $750 a month and to about $900 a month in 2008. The MacDonalds say their actual medical costs hadn’t come close to the premiums they were paying. “What are we getting for it?” Ms. MacDonald says they asked themselves before canceling.
Notice that Mr. MacDonald is stuck in the American way of thinking of health insurance as prepayment of medical expenses rather than as true insurance. I’ve bought life insurance for the last 27 years. Yet I haven’t died. Should I be disappointed?
Now they put aside $750 a month to cover medical costs as they arise, plus the $1,068 penalty each adult would pay for going without coverage. The biggest expense came last year, when their then 4-year-old son, James, fell and cut the bridge of his nose. The five stitches and care of a plastic surgeon cost $2,000, which the MacDonalds said they were able to pay from reserves they’d set aside.
I love this excerpt above. What a great individual response to the system, given that you’re not going to buy health insurance.
And the kicker:
Mr. MacDonald said he’d be inclined to buy insurance if he could buy cheaper catastrophic coverage, but such policies don’t count in the Massachusetts plan.
So maybe Mr. MacDonald does understand the essence of insurance after all. Notice also that you can’t comply with Massachusetts law by buying catastrophic insurance, a major flaw in the plan. Similarly, the House bill I’ve read–I’ve forgotten which one–would make catastrophic health insurance illegal.