Mandatory Health Insurance: Wrong for Massachusetts, Wrong for America

The Plan and Its Popularity

In April 2006, Massachusetts became the first state in the nation to require that all of its residents purchase health insurance. This mandatory insurance was the centerpiece of a “universal” health care law hailed by analysts as an “innovative bipartisan plan.”1 Republican governor (and former presidential candidate) Mitt Romney proclaimed that “every uninsured citizen in Massachusetts will soon have affordable health insurance,” that costs would be reduced through “market reforms” encouraging “personal responsibility,” and that the plan would require “no new taxes . . . and no government takeover.”2 The plan had support from organizations and individuals across the political spectrum, including the conservative Heritage Foundation, the liberal group Health Care for All, and Democratic Senator Ted Kennedy.3

The Massachusetts plan was, in part, a response to today’s health care costs, which are rising twice as fast as inflation, making insurance increasingly unaffordable for many employers and individuals.4 Currently, approximately 47 million Americans have no health insurance.5 In an effort to solve the problem in their corner of the country, Governor Romney and the Massachusetts state legislature enacted this plan with the twin goals of reducing the cost of health care and guaranteeing coverage for all Massachusetts residents.

The Massachusetts plan consisted of the following major elements: The state would establish a quasi-governmental authority known as the Commonwealth Health Insurance Connector (or “Connector”) to serve as a clearinghouse through which individuals would be able to purchase state-approved insurance plans. Every resident would be required to purchase a health insurance plan, either from a private insurer or though the Connector, with stiff financial penalties for those who failed to comply.6 Residents who could not afford insurance would have their expenses subsidized by the state in part or in full, depending on their income. Employers with more than ten employees would be required to provide health insurance for their workers or pay a special fee to subsidize coverage for low-income individuals.7 In theory, the plan would lower individual patients’ insurance costs by enlarging the pool of insured patients. In particular, younger, healthier patients (who often choose not to purchase insurance) would be required to do so, thus paying a portion of the health costs of the larger population.8

The plan was attractive to liberals and conservatives alike. Liberals embraced it because it supposedly promised “universal coverage” without requiring them to support politically risky Canadian-style “single-payer” socialized medicine.9 Conservatives embraced it because it supposedly encouraged “personal responsibility” while preserving a “market framework” for health insurance.10

For these reasons, mandatory health insurance has become popular with politicians in both major political parties, including Republican California governor Arnold Schwarzenegger and former Democratic presidential candidates Hillary Clinton and John Edwards.11 The idea has been endorsed by the National Small Business Association and the National Business Group on Health (an association of large businesses).12 Several states besides Massachusetts and California—including New Jersey, Ohio, Rhode Island, Pennsylvania, Illinois, and Colorado—have considered or are considering some version of mandatory health insurance.13

Yet two years after its inception, the Massachusetts plan has failed to achieve either of its goals. The plan did not lower health care costs, nor did it achieve universal coverage. Thus, given the growing popularity of mandatory health insurance, Americans would do well to take a close look at the results of the Massachusetts plan—and, more importantly, at the reasons for those results. Let us look first at the results.

The Results in Massachusetts

Although advocates of the Massachusetts plan claimed that it would lower health care costs and achieve universal coverage, it has done neither. Instead, the plan has increased costs for individuals and the state, reduced revenues for doctors and hospitals, and left Massachusetts officials in the awkward position of having to admit that their “universal coverage is not likely to be universal any time soon.”14

Costs have risen for individuals because, under this plan, as under any mandatory insurance scheme, the government must define what constitutes an acceptable insurance policy. As a result, special interest groups have been given both the incentive and the means to lobby politicians to include their pet benefits as part of the government-approved plan. Consequently, the state government requires all patients to purchase “benefits” that are useless to many of them—benefits they would never voluntarily choose to purchase in a free market. For example, Massachusetts currently requires insurance plans to include forty-three mandatory benefits, including in vitro fertilization, blood lead poisoning treatment, and chiropractor services—whether or not customers want them. Residents must purchase alcoholism therapy benefits, even if they are teetotalers. These mandated benefits have raised the costs of health insurance in Massachusetts by 23 to 56 percent.15

Costs to the state government have skyrocketed and are projected to run hundreds of millions of dollars over budget.16 Because the mandated insurance is so expensive, the government has had to subsidize the costs of the premiums not only for lower-income residents, but also for residents with incomes as high as $60,000 for a family of four—which is three times the Federal Poverty Level.17 The state had expected a “significant drop in spending . . . for the uninsured” but has since acknowledged that this “is not going to happen to any large extent in 2009.”18 Instead, overall costs to the state have risen by more than $400 million, 85 percent more than originally projected.19

Because of its own rising costs, the state government has cut payments to doctors and hospitals. According to family physician Dr. Katherine Atkinson, the state insurance reimbursements often do not cover her expenses: “[E]very time I have a Medicaid patient it’s like handing them a $20 bill when they leave.”20

As a result of these rising costs and falling revenues, access to medical care has dwindled for many patients. Fewer doctors are willing to take on new patients for fear of losing even more money. Lee Sampson, a 47-year old medical transcriptionist, had to call fifty doctors’ offices before she could find one that would take her as a new patient.21 Tamar Lewis, a 24-year old hair stylist, called more than two dozen primary care doctors for a checkup. All of them turned her down, leaving her with no choice but to rely on the community free clinic.22 Patients face long waits for basic medical care—in some cases more than a year for a routine physical exam.23 These long waits are not due to a shortage of doctors. As the New England Journal of Medicine notes, Massachusetts “has the highest physician-to-population ratio of any state, in primary care as well as overall.”24 The waits are due to a government policy that discourages physicians from seeing patients—a policy under which seeing patients can mean that physicians lose rather than make money.

Advocates of the plan often claim that the program has succeeded because it has decreased the number of uninsured patients.25 In so doing, however, they commit the common error of conflating insurance “coverage” with medical care. The government can make endless promises of theoretical “coverage,” but this is not the same thing as guaranteeing actual health care. As Dr. H. Carroll Eastman, medical director of the Joseph M. Smith Community Health Center, confirms: “[W]e don’t have more doctors, but we have lots more patients”—and the new patients have to wait two to three months for an appointment.26 These patients know the difference between “coverage” and care.

The Massachusetts plan has created similar problems with access to dental services. Although the state theoretically guarantees dental coverage for nearly 700,000 previously uncovered low-income residents, many of them are having a difficult time getting access to actual dental care and often must wait months for an appointment. According to dentists, the state reimbursement rates for adult patients cover only half their costs, and the paperwork is a “nightmare.” Massachusetts dentists are therefore understandably reluctant to accept these patients. As Dr. Michael Wasserman says: “[I]f a dentist is going to treat these patients he or she should not be forced to lose money.”27 Once again, “coverage” does not equal actual care.

Access has also declined for those who were supposed to be helped the most—the “poor” and indigent. The Cambridge Health Alliance, which provides medical care to indigent patients in the Boston area, announced that due to rising costs it is facing a “catastrophic” loss and will have to fire staff, cut services, and “limit referrals to [outside] specialists” in order to remain financially solvent.28

These problems will only worsen. For individuals, insurance prices in Massachusetts will rise 10 to 12 percent next year, twice the rate increase of the national average.29 Costs to the state will also continue to rise. The state subsidies are expected to double over the next three years, and the state has asked the federal government to help make up the shortfall of hundreds of millions of dollars.30 Some analysts predict that the Massachusetts plan will ultimately cost the state more than three times the original estimates.31 The state is also considering raising taxes and requiring businesses, hospitals, and insurers to pay more to fund the program.32 Finally, the state plans to slash payments to doctors and hospitals an additional 3 to 5 percent, which will make it even harder for patients to find physicians willing to see them.33

In a word, the plan is a fiasco.

An Autopsy of the Failure

So what happened? Why has this “innovative bipartisan plan” failed to accomplish its intended goals—and instead achieved the opposite? Why has health care in Massachusetts—which, prior to the implementation of this plan, had one of the lowest rates of uninsured patients relative to other states—fallen into such chaos?34

The Massachusetts plan has failed for two related reasons: First, it ignores the fact that health insurance is a commodity (in the broadest sense of that term: a good or service created by businessmen for trade in the marketplace); and second, it violates individual rights. As with any other commodity, health insurance cannot be created by a government mandate. Just as the government does not and cannot create shoes by mandating “foot coverage,” so it cannot create health insurance by mandating such coverage. The proper function of government is not to create or provide goods or services, but to protect individual rights so that people can create and trade goods and services according to their own best judgment.

Insurance is a financial service created by businessmen that enables customers to voluntarily share the risks of expensive but rare adverse events, such as serious accidents or illnesses. Customers pay premiums to the insurer; in exchange, they receive payments from the insurer, according to contractually agreed-upon conditions, if a covered adverse event occurs. As with any commodity, insurers voluntarily sell and customers voluntarily purchase this service because each party judges the exchange to be to his benefit.

In order to create a service that would be of value to customers, an insurer must think and plan long-range. He must carefully analyze the likelihoods and costs of these adverse events. He must calculate the proper prices to charge customers in exchange for the promised payments. And he must set these prices at levels that enable him to make a profit while still offering a value to customers. Thus, if the insurer is to provide insurance, he must be left free to think and run his business according to his own judgment.

Similarly, for a customer to determine whether he should purchase insurance, and if so, which policy he should purchase, he must think and act on his own judgment. He must consider the full context of his needs, conditions, behaviors, future plans, and financial situation. If he is to make a sound decision about his insurance needs—which only he can have sufficient knowledge to make—then he too must be left free to think and act as he sees fit.

Mandatory insurance violates the rights of insurers and individuals to act on their own judgment.

A right is a legitimate freedom of action—a freedom of action necessary for the maintenance and furtherance of human life. The right to act on one’s judgment—which means, the right to act on one’s basic means of survival—is one’s basic right. Mandatory insurance violates this right by forcing insurers to sell and customers to purchase insurance on terms and prices dictated not by their own judgment, but by government decree, thus destroying the very conditions that make insurance a value. This is what has caused the disastrous economic consequences in Massachusetts.

Mandatory insurance violates individual rights in several ways. First, it forbids individuals and insurers from contracting voluntarily in a free market. In Massachusetts, individuals must choose between one of only a few government-approved plans.35 The terms of these state plans were not determined by patients and insurers negotiating in a free market. Instead, major elements, such as the prices of the plans and details of prescription drug coverage, were decided by the ten members of the government-appointed “Connector” board after ferocious lobbying from pressure groups including “business, labor, medical professionals and needy patients.”36 This is a classic example of what philosopher Ayn Rand called the “politics of pull.”37

This politics of pull has led to individuals being forced to spend their own money on such benefits as in vitro fertilization and chiropractic services regardless of whether they actually want or need such benefits. This makes as much sense as the government deciding that everyone needs “transportation coverage,” requiring all individuals to purchase BMWs loaded with all the options, and offering subsidies for those who cannot afford to buy their own. Just as the predictable result of that would be massively increased automobile costs for customers and the government, so the predictable result of the Massachusetts plan has been massively increased costs all around.

Observe that when people are forced to purchase such unwanted benefits, they are thereby forced to subsidize patients and providers with political clout. The situation here is akin to a scheme such as homeowners in Florida lobbying Congress to pass a law requiring all Arizona residents to purchase hurricane insurance. Just as this farce would force Arizonans to subsidize the hurricane coverage of Floridians, so mandatory health insurance forces some people to pay for coverage they do not need in order to subsidize the coverage of pull peddlers.

Similarly, under mandatory health insurance, lower-income residents, who pay less than higher-income residents (or nothing at all) for the same coverage receive greater value than they deserve for their artificially low (or nonexistent) premiums, while the higher-income residents receive less value than they deserve for their artificially high premiums. (Alternatively, the difference is made up by those who are forced to pay taxes that are used for this purpose, an alternative that is even more unjust.)

Mandatory insurance is a thinly veiled system of welfare. Politicians rarely admit this fact, but ordinary citizens understand it all too well. As Massachusetts resident Linda Impemba said in response to the mandatory insurance plan: “There’s no way in heaven I can possibly survive in this state . . . [N]ot only is my cost going to go up, everything’s going to be raised so I can pay for the other people [to be insured].”38

Young, healthy adults are the most unjustly affected by mandatory insurance.39 These patients consume the fewest medical resources and therefore, under mandatory insurance, most heavily subsidize the costs of the older, more-frequently-ill patients. Mandatory insurance robs them of money they could use for their own goals, such as saving to buy a first house or to start a business or a family. Hence, mandatory insurance forces them to sacrifice their lives and futures for the sake of the collective.

The Massachusetts plan is based on the socialist principle of “from each according to his ability, to each according to his need.” Those who can afford insurance are forced to pay more to subsidize those who cannot, and those who need medical care—regardless of whether they have paid or can pay for it—are allegedly entitled to receive it. This is why the Massachusetts plan is already failing in exactly the same ways that socialized medicine has failed in countries such as Canada and Great Britain.40 It is no coincidence that the long waits that some Massachusetts patients endure for their “guaranteed” medical and dental care are similar to the long waits in Canada and Great Britain today—and to the long bread lines in the former Soviet Union.

At the most fundamental level, the flaw underlying the Massachusetts plan (and all other forms of socialized medicine) is the premise that health care is a “right,” that it must somehow be guaranteed by the government. This premise is false.

As mentioned earlier, health insurance is a commodity, a good created by businessmen for trade in the marketplace. A right, on the other hand, is not a good created by businessmen, but a principle sanctioning an individual’s legitimate freedom of action. A right is something that other people are morally obliged to grant to an individual—namely: the freedom to act on his own judgment. To treat health insurance (or health care) as a right is to treat a commodity produced by businessmen as something to which everyone is entitled; it is to treat the producers of health insurance as slaves of the collective.

Additional Lessons and Genuine Reforms

As we have seen, mandatory insurance increases the costs of and decreases access to health insurance (and health care) because it ignores the fact that health insurance (like health care) is a commodity—and because it violates the rights of individuals and insurers to voluntarily contract to mutual benefit. Hence the debacle in Massachusetts, from which Americans in general can draw additional important lessons.

Liberals are wrong when they blame the failure of the Massachusetts plan on the free market. The failure in Massachusetts is not the result of too much individual freedom or too little government force; it is the result of the exact opposite: government interference in the marketplace. It makes no more sense to blame the free market for failures caused by government interference than it would to blame a starving cow for failing to produce milk.

The road to properly priced, highly accessible health insurance and health care is not, as the New York Times claims, higher taxes and more government controls.41 Nor is it, as others propose, the elimination of private insurance and the establishment of a Canadian-style single-payer government medical system.42 The road to sound health insurance and health care is the recognition of the fact that these things are commodities and that individuals have rights.

Another lesson to be drawn from Massachusetts is that conservatives are wrong when they portray mandatory insurance as a “private-market-based solution” that promotes personal responsibility.43 Mandatory insurance is not a free-market reform, but the exact opposite. What is “free” about a program that forces individuals and insurers to act against their own judgment and interests? Would conservatives call government-mandated gasoline distribution a “free-market reform” for high gasoline prices?

A free market does not consist in the state dictating to insurance companies (or gasoline producers or producers of any other commodities) what they must and must not sell, or with whom they must do business. Mandatory insurance turns insurers into heavily regulated subcontractors for the government, akin to public utilities or the postal service—the exact opposite of free-market entities. Tellingly, New Jersey’s proposed version of mandatory health insurance does not even pretend to preserve the fiction of a free market, but would instead “use a single plan administered by the state rather than requiring individuals to buy such a plan in the private market.”44

Nor does mandatory health insurance promote “personal responsibility,” as conservatives claim. Personal responsibility presupposes that an individual has the freedom to make his own decisions and enjoy (or suffer) the consequences thereof. Personal responsibility presupposes that if a patient wants to pay a willing insurer more money now in exchange for the assurance of lower future costs if he becomes ill, then he is free to make that choice. Similarly, personal responsibility presupposes that if he chooses not to purchase health insurance and later incurs a $10,000 medical bill, he will be held accountable for it even if he has to sell his car, borrow money from his family, or rely on charity. When the government forbids an individual from making such choices about his health insurance, it makes personal responsibility in this area impossible.

The solution to our health care crisis is not more government violations of individual rights, but rather for the government to recognize and protect individual rights. This means adopting genuine free-market reforms.

Any number of incremental reforms would move us in the direction of a fully free market. Lawmakers should begin by eliminating insurance benefit mandates and other laws that prohibit individuals from purchasing insurance across state lines. These reforms would enable patients to purchase policies that best suit their needs, from the best offerings of all the insurers in all fifty states. State legislatures could easily enact both of these policies without permission from the federal government. Arizona Congressman John Shadegg has already proposed a bill permitting the latter at a national level.45

Other key reforms include enabling individuals to establish Health Savings Accounts (HSAs) to pay for small routine expenses and freeing the market so that insurers can offer low-cost, catastrophic-only insurance policies. The combination of these reforms would give individuals access to a low-cost means to substantial coverage. These reforms alone could reduce insurance costs by 20 to 50 percent, thereby making insurance available to millions of Americans who want to buy it but cannot currently afford it.46

Yet another important reform is to enable individuals to purchase health insurance with pretax dollars, just as employers can when they purchase policies for their employees. This would eliminate the tax penalty patients incur when they purchase individual health insurance separate from any employer offerings, further freeing people to act on their own judgment and to exercise genuine personal responsibility.

Conclusion

The solution to disproportionately high health care costs and poor access is for Americans to recognize that health insurance and health care are commodities that can be produced only by means of the long-range thinking, planning, and risk-taking of businessmen acting in a free market, and that individuals and insurers have the moral right to contract with each other as they see fit. Mandatory insurance fails because it ignores these facts and violates these rights.

Although mandatory insurance masquerades as a “market-based solution,” in reality it is just another form of socialized medicine. The Massachusetts plan failed because it suffered from all the moral and practical flaws inherent in any system of socialized medicine.47 Mandatory insurance was not right for Massachusetts—and it is not right for America. It is a rights-violating road to disaster.

If we Americans value our health and our lives, then we must reject mandatory health insurance. We must demand that the government stop violating individual rights and start protecting them. We must demand a genuine free market in health insurance and health care, because only a free market can provide us with the quality, affordable health care that we all need.

About Paul Hsieh

Paul Hsieh, MD, is a practicing diagnostic radiologist in the south Denver metro area. He received his BS in mathematics from the Massachusetts Institute of Technology and his MD from the University of Michigan, and has served on the faculty at the Washington University School of Medicine in St. Louis, MO. Dr. Hsieh is also a founding member of Freedom and Individual Rights in Medicine (FIRM). For more information on FIRM, please visit www.WeStandFIRM.org.

View all articles by Paul Hsieh →