Damn Reality! Full Speed Ahead!

by Don Boudreaux on April 7, 2006

in Health, Myths and Fallacies

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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