Those with a faith in government — as well as the secular priests who minister to them (politicians) — continually commit what science writer Matt Ridley calls "the reverse naturalistic fallacy": inferring an "is" from and "ought." Those who commit this fallacy believe that if something ought to be true, then it is true.
For example, it ought to be true that we can devise a scheme under which every American can afford the finest health-care that technology supplies; such wide and generous access to health care would truly be wonderful. So (many people believe) it is true that we can devise such a scheme to give everyone such wide and generous access.
Wrong.
In today’s Wall Street Journal, EconLog‘s Arnold Kling, newly affiliated with the Cato Institute and still teaching each Fall semester at George Mason University Economics, dissects the just-enacted health-care "reform" in Massachusetts. This legislation is a grand product of the reverse naturalistic fallacy. Here are Arnold’s opening paragraphs:
The elected leaders of Massachusetts have come up with
a novel solution for the vexing problem of paying for health care:
abolish the laws of arithmetic. Their new plan is a perfect
illustration of what happens when politicians approach a problem
unconstrained by reality.
The plan includes tax incentives and penalties for
employers and individuals to get everyone covered by a health-care
policy. It also promises affordable health insurance for people with
modest incomes, under a program yet to be negotiated between the state
and private insurance companies. Nevertheless, three numbers stand out:
$295, the annual penalty per worker a company must pay to the state if
it does not provide health insurance; $0, the deductible on the typical
state-subsidized health-insurance policy under the plan; and $6,000,
the average annual expenditure on health care for a Massachusetts
resident. Each of these numbers represents one of the irreconcilable
goals of health-care policy:
• $295 represents the goal of affordability.
We would like to be able to purchase health-care coverage for $295 a
year. If that’s what it actually cost, my guess is that the problem of
the uninsured would pretty much disappear.
• $0 represents the goal of insulation. As
individuals, we would like to be insulated from health-care costs. That
is why, instead of real insurance — which would have us pay for at
least the first $10,000 of health care out of pocket — most of us have
health-care policies with much lower deductibles.
• $6,000 represents the goal of accessibility.
We want access to the best care that modern medicine can provide,
whatever the expense.
The question is this: What 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.
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If companies only have to pay $295 per employee to escape this new obligation, I imagine they will. This will leave the taxpayers to foot almost the entire bill, though I imagine the legislature may try to shake down the insurance companies by forcing them to give a special deal to the state.
I agree with bbartlog – according to the Law of Unintended Consequences, a tax, er, fine of only $295 per employee will likely result in the mass execution of all corporate health care plans in the state of Massdelusion. In fact, it would be fiscally irresponsible for any corporation to NOT take this step – what company pays that little to provide health insurance? I'm guessing the savings for companies dropping health care will be fairly large…..
The more I think about this, the more bewildered I become.
A very simplistic look at the math involved: Let's assume the employee pays 50% of his company's health care plan – therefore, using the $6,000 annual cost, the corporate cost for providing health care insurance would be $250 per *month* or $3,000 annually – and that's before any administrative costs for the company and insurance company profits are accounted for.
Not providing HCI costs only $295 annually.
This universal health care law, thus represents a way for a company to save at *least* $2700 per employee annually by NOT providing health care coverage – at a level of 50% employee contribution.
Exactly *who* wrote this law – "evil big business" interests???? Ouch
The politicians of Taxachussetts are doing the same wrongheaded thing as every other politician, working to get more money into the system rather than look at how to keep costs down through free market mechanisms. When will they learn more insurance will just drive up prices higher and higher.
Couple the first mistake with the creative math being employed here and you will shortly see disaster for this plan.
the mass execution of all corporate health care plans in the state
Actually, I hadn't even thought of that. If the health insurance provided by the state is of similar quality to that currently provided by the employer, they will of course be better off pushing their employees on to it. Even if the state healthcare is somewhat inferior, employers can pay their employees some of the savings in the form of higher wages in order to make up the difference.
Of course, more legislation will be drafted once the economic illiterates in government realize that things aren't working as they intended.
$6000/yr mean health care costs? Am I the only one shocked by this? (I really wonder what the median is.)
Maybe it's just because I'm only 24 and my only annual health care costs are dentistry and glasses, but I can't imagine who has to spend that much aside from those with chronic illness.
I don't suppose there's any readily available raw data on this?
It has been a long time since I lived in Massachusetts, but as I recall it was illegal way back when to buy catastrophic health insurance with a deductible a la auto insurance. You could buy an HMO with some sort of copayments thing, but if you wanted to be true to the purpose of insurance, which is to pay for disasters you can't afford, then you were shit out of luck.
The government does not save anyone money when it offers something for free.
Of course the state scheme will save people money, because its a rediculously low price that would never happen in the market. All companies would save money if they could get a health plan with a $295 premium, no deductible and 6000 dollars coverage. But this price is entirely illusory as a measure of cost.
These "savings" will work only to the point when private health firms start to bleed money from lost profits and the cash has to start coming from somewhere. Health firms just arn't going to offer the same services for this price, they are going to demand the cash from the government or start slashing services. So once the luster of these quick savings to employee health plans has faded people can start paying for socialized medicine the old fashioned way, with sky high taxes.
Taxes, taxes taxes… This is how the "savings" of this plan are going to be filled.
Wrong indeed. The man has confused marketing with advertising. Marketing is the process by which companies produce goods and services that people want to buy. Most marketing activity is actually designing and improving products themselves. Pricing and distribution are other main tasks. Advertising is merely the communication of these efforts to the marketplace. Most of it is honest and some of it clearly isn't, but in reality very little advertising makes an attempt to lie to us about product quality. Rather, a great deal of it attempts to convince us we need a good or a service to a greater extent than we do. The fact that much of what we buy fails to meet our pumped up expectations of its utility to us is not the same as it failing to live up in terms of product quality.
Noah, my company spends over $8,000 per employee on HCI. Employees pay about 15-18% of the premiums themselves.
The King WSJ article only says three numbers "stand out": the zero deductible, the $295 fine, and the $6000 annual average. If those are the only numbers in the law, then there's definitely something wrong. But to tell us only the numbers that "stand out" and then make conclusory claims based only on those numbers isn't good math either. Some possible sources of numbers being ignored:
Tax base: the $295 fine is over what the company already pays in taxes; the state could choose to use the corporate tax to augment the cost of insuring the uninsured of that company. Plus, for all we know, this law is coupled to corporate tax increase (let's hope so – anything to get those nasty rich companies to give something to the poor of my home state).
Current state expenditures for health costs: If the current tax base (corporate and personal) is already funding health care for the poor, then that would potentially be a savings in the current budget that could be reallocated to cover the difference between the fine/premium and average outlay. Depending on those numbers, there might not even need to be a tax increase to cover the difference.
Where that $6000 average comes from: The $6000 average is under the current system, with lots of healthy people who have insurance (as well as some unhealthy), and lots of sick people who don't have insurance (and some healthy). If all of those uninsured people get insurance and hence preventative care, the $6000 is likely to decrease in the next few years. Hence, the system might build in a deficit in the beginning expecting that the cost savings will make up for it in the long run.
Saying MA abolished arithmetic based on this woefully limited information is like saying I don't know arithmetic when I say 2+X=Y
I think the point is, where does the legislature show it did the math? It certainly is not obvious.
This is just too simplistic to make any sense. First off, health insurance has as it's sole purpose the payment of doctors. It is insurance that doctors will get paid. Doctor's are the only ones worried about whether or not they will get paid, so doctors must be behind this. Perhaps the Massachusetts'legislature is composed of doctors. It also requires every resident to carry insurance or post a bond to insure that medical bills will be paid. It is thus a crime to be uninsured in Massachusetts. The thought behind mandatory auto insurance is that driving is a privilege, not a right, which allows the state to impose any condition it wants. The thinking must follow that living in Mass… is also a privilege, not a right. Therefore, the state may impose criminal penalties on individuals for living there without health insurance. The fact that an employer is fined $295 does not releive an individual of this obligation. Every law, no matter how well intended, always takes away some freedom. If you believe that Mas… will provide health insurance for $295, maybe you believe it's their way of attracting new business to the state.
Surprisingly enough, this health care strategy was coordinated with the Heritage Foundation, and approved with their complete endorsement. That fact alone is bewildering, but the idea that actually choosing not to have health insurance can be a crime is mind-blowing.
I'm starting a pool. How long before MA makes it illegal to drop or change your existing medical insurance?
Mcwop, I don't mean the cost of INSURANCE, I mean the cost of CARE.
I suppose this story is too old to get any more responses, but I'm still curious why this number is so high. My only intuition is that it's a highly skewed distribution distorted by a relatively small number of catastrophic injuries/illnesses, cutting-edge treatment for serious chronic illnesses, and late-life care. Put another way, I suspect that "average" does not equal "typical".