Wednesday, May 16, 2007

The Dangers of Mandatory Comprehensive Health Insurance

State-wide mandatory comprehensive health coverage is set to be in form July 2007 in Massachusetts. Every resident will be forced to buy coverage or face a $1000 fine. In January, California's governor announced similar intentions. Talks are underway in Maryland as well.

Kirzner writes in The Perils of Regulation, "the urge to regulate, to control, to alter these outcomes must presume not only that these undesirable conditions are attributable to the absence of regulation, but also that the speedy removal of such conditions cannot be expected from the future course of unregulated market events." The urge to implement comprehensive health coverage stems from a belief that the market failures of health care are due to a lack of government regulation.

By fixing a quantity, Q, presumably above equilibrium, regulation forces a premium price of insurance above equilibrium. While this is common sense to assume price increases with comprehensive coverage as the above figure illustrates, other perils of regulation consequentially develop.

When government intervenes, as Kirzner writes, it fails to understand that the market has not yet discovered all that it will surely soon tend to discover”. By setting quantity fixing, through imposing mandatory coverage, this blocks the discovery process that may have taken place in due time.

According to Porter and Teisburg (Redefining Health Care, 2006), health care is driven by competition to increase bargaining power, cost shifting, and defensive medicine. No economy of scale is produced with increased beneficiaries. Mandatory health coverage will only serve to feed into this defective system.

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