Massachusetts will need a miracle - new law to guarantee health insurance to everyone

National Review, May 13, 1988

Massachusetts Will Need A Miracle

THE MASSACHUSETTS legislature has passed Governor Dukakis's plan to guarantee health insurance to everyone, including the unemployed. Some 600,000 of the state's residents (10 per cent) are currently uninsured. Employers with more than five workers will initially pay about $1,680 per worker, if they do not already spend that much for health insurance (as two-thirds do). The cost estimates, of course, will soon prove as widly optimistic as they did with Medicare and Medicaid. Individuals are expected to pay one-fourth of the cost, on average, but that depends on their income. The unemployed reportedly "would pay what they could." Sure they will.

"We are sending a very important signal out to the people," says Governor Dukakis. Indeed they are. To a business with seven low-wage employees, the message is: Fire two of your employees or go out of business. To workers, the message is that if you nothing you can get something valuable for while if you earn something you will have to pay the benefit. For the unemployed, the cost of beco employed just went way up. For everyone, the fits of working "off the books" in the underground economy also went way up.

For companies employing unskilled workers, it now cost an extra 16.8 percent, at least, to someone a job paying $10,000 a year. This is worst possible sort of payroll tax, since the cost much larger burden on low-wage jobs than on wage jobs (which offer such benefits already). Employers can't possibly pay more in wages and for benefits -- health insurance included -- than workers to the firm's revenue. Either wages have to go down to match the increased cost of fringe benefits, more likely, jobs that would otherwise have created simply cannot justify the added cost.

If this idea ever went national, as Senator Kennedy's similar bill proposes, there is no stopping the potential lunacy. Why not require employers literally to provide every worker with a free lunch? How about requiring free housing while we're at it, and a company car to every student who flips hamburgers at McDonald's? One value of federalism, however, is that it provides a testing around for such ideas. The results for Massachusetts are quite predictable. Employment of young people and other entry-level, unskilled workers will decline, a growing "underground" economy will erode state tax receipts, and the state will become less competitive with other states and countries. Thanks for the econ lesson, Mike.