Today’s “Marketplace” program on NPR featured a commentary by Robert Reich (audio available here), in which the former labor secretary sang the virtues of Massachusetts’ new health insurance law. Reich emphasized a couple of times that the Massachusetts plan wouldn’t involve any new taxes. That aspect, he said, might make the plan attractive to the yokels who live in the Fly-Over states: “Even Kansas might be attracted by a plan that insures nearly everyone without paying a taxpayer dime,” Reich concluded.
There’s lots of potential blog material in Reich’s commentary, but I’ll concentrate on Reich’s defense of the mandate that non-poor people purchase health insurance. Reich explains and defends that requirement as follows:
Massachusetts is requiring middle and upper-middle class people who donâ€™t now have health insurance to buy it for themselves. Many of these people are young â€“ in their twenties and thirties. They donâ€™t have health insurance because they know their risk of having a serious health problem is very low. Like most young people, they think theyâ€™re indestructible.
Of course, theyâ€™re not indestructible. Some of them will need health care. But when theyâ€™re required to buy health insurance, they not only insure themselves, they also add their money to an insurance pool that will be drawn on by everyone, including those who are older, poorer, and likely to be sicker.
Now, libertarians may holler about this, but it seems sensible and fair. Mandatory health insurance is not an invasion of our independence. I mean, weâ€™ve got to buy car insurance if we want to drive, right? We have to buy home insurance if we want to get a mortgage. So, whatâ€™s wrong with requiring everyone who can afford health insurance to buy it, even if some people who are needier may get a bit more of the benefits?
A couple of things to notice here:
First, Reich is glossing over what is a very real tax on healthy Massachusettians. When Reich lauds the fact that those people will be required to “add their money to an insurance pool that will be drawn on by … those who are older, poorer, and likely to be sicker,” what he’s really praising is the fact that healthy folks, whose premium contributions will exceed their expected claims, will be forced to subsidize the less healthy. That, in effect, is a tax. (I’m not saying it’s a bad one, but let’s recognize that it’s forced redistribution–a.k.a., a tax.)
Second, Reich’s analogy to mandatory automobile and homeowner’s insurance fails. The justification for mandatory automobile insurance is externalities — the tort system internalizes the costs of carelessness, but not for the judgment-proof. Mandatory automobile insurance laws (and only liability insurance is mandatory) seek to assure that there are no judgment-proof drivers, so all drivers have an incentive to use reasonable care, and tort victims have access to compensation. Mandating homeowner’s insurance is something a lender (not the government) does in order to protect its own security interest in the borrower’s property. In contrast to these mandates, a law requiring health insurance is not aimed at protecting third-parties. It’s just paternalistic (and, as noted above, redistributive). Now, Reich might be able to argue that young, healthy people’s myopia justifies this paternalism. He’s wrong, though, to suggest that the justifications for mandatory automobile and homeowner’s insurance apply here.
Of course, the fundamental problem with the Massachusetts universal insurance law is that it ignores the laws of arithmetic, as Don Boudreaux and Arnold Kling have explained elsewhere.
It’s worth noting that Reich is eliding a key distinction between health insurance and automobile insurance: automobile insurance is (in most states) well underwritten, and health insurance isn’t. This difference creates the cross-subsidization issue you mention.
In other words, it might be reasonable to require young people to purchase health insurance to cover their own expected costs of health care, at a price reflecting those costs; that is what we do with automobile insurance. What Massachusets is doing is requiring them to buy such insurance, and also to pay the difference between their health-care costs and the average person’s to provide care for others; that is noticeably less reasonable.