Monday, March 29, 2010

Health Care Incentives

John Cassidy looks at the size of the subsidies and penalties that face individuals and firms under the Health Care plan. His analysis shows that
  • The so-called “individual mandate” isn’t really a mandate at all. Under the new system, many young and healthy people will still have a strong incentive to go uninsured.
  • Once the reforms are up and running, some employers will have a big incentive to end their group coverage plans and dump their employees onto the taxpayer-subsidized individual plans, greatly adding to their cost.
The penalties for individuals are not large enough to induce health people to buy insurance, and the subsidies for individuals dropped from group insurance are too high to not be taken up. This suggests that the estimated reduction in uninsured is overstated and that the subsidies that will be required under the plan are underestimated.

Tyler Cowan also discusses this issue.