NJ Fiscal Folly

Wednesday, April 19, 2006

Yet Another Dumb Idea

Two NJ Democratic legislators will try to determine whether some version of the new Massachusetts "universal health insurance plan" could work in New Jersey.

Here's the short answer.  No.

The plan won't even work in Massachusetts.

Arnold Kling wrote a scathing critique of the new Massachusetts law, including the following comments:

"The elected leaders of Massachusetts have come up with a novel solution for the vexing problem of having to pay 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......"

"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 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......"

"Only when the size of the necessary tax increase becomes clear will Massachusetts's leaders learn the laws of arithmetic."

In general, if the insurance premiums are very low relative to potential benefits, enrollment will explode. If the deductibles and co-pays are very low or zero, usage will explode. Both the average yearly cost and the annual state subsidy will increase. If enrollment and usage both increase simultaneously, you'll create a financial disaster.

NJ has roughly 1.3 million people without health insurance. Let's be conservative and assume 25% participation by these potential "customers", at an average annual state subsidy of $3,000 apiece. The total estimated cost for NJ taxpayers would be at least $975 million per year. 50% participation with a $6,000 subsidy would cost $3.9 billion per year.

There's no way in hell that NJ can afford such a program.

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