Mandatory Health Insurance: Lessons from Massachusetts

17 Pages Posted: 15 May 2013

Date Written: June 14, 2009

Abstract

As this article will explore, there is another, more hidden aspect of the Commonwealth Care program that may drive future costs far higher than originally projected. Embedded within the heavily subsidized program are several perverse incentives affecting firms and individuals. First, the program unintentionally gives incentives for smaller firms to discontinue health insurance so that their employees can sign up for cheaper state-subsidized care. Second, it gives incentives for employed individuals to earn less in order to qualify for higher benefits. Because subsidies immediately fall off as one crosses defined income brackets, instead of being slowly withdrawn, there are sudden and large implicit marginal tax rates that can exceed 100 percent in some cases. Enrollment in Commonwealth Care is expected to have “moderate” growth in 2010 according to state government projections, primarily due to the economic downturn (Governor’s Budget 2009). Yet these incentives could cause enrollment to accelerate if more individuals and firms see and take advantage of the opportunities for government subsidies.

Keywords: Mitt Romney health care bill, Obamacare Massachusetts health plan comparison

JEL Classification: H75, Ill, I18

Suggested Citation

Richardson, Craig J., Mandatory Health Insurance: Lessons from Massachusetts (June 14, 2009). Cato Journal, Vol. 29, No. 2, 2009, Available at SSRN: https://ssrn.com/abstract=2264888

Craig J. Richardson (Contact Author)

Salem College ( email )

Winston-Salem, NC 27108

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