The Massachusetts Health Plan: Much Pain, Little Gain

CATO Institute ^ | January 20, 2010 | Aaron Yelowitz and Michael F. Cannon

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In 2006, Massachusetts enacted a sweeping health insurance law that mirrors the legislation currently before Congress. After signing the measure, Gov. Mitt Romney (R) wrote, "Every uninsured citizen in Massachusetts will soon have affordable health insurance and the costs of health care will be reduced." But did the legislation achieve these goals? And what other effects has it had? This paper is the first to use Current Population Survey data for 2008 to evaluate the Massachusetts law, and the first to examine its effects on the accuracy of the CPS's uninsured estimates, self-reported health, the extent of "crowd-out" of private insurance for both children and adults, and in-migration of new Massachusetts residents.

We find evidence that Massachusetts' individual mandate induces uninsured residents to conceal their true insurance status. Even setting that source of bias aside, we find the official estimate reported by the Commonwealth almost certainly overstates the law's impact on insurance coverage, likely by 45 percent. In contrast to previous studies, we find evidence of substantial crowdout of private coverage among low-income adults and children. The law appears to have compressed self-reported health outcomes, without necessarily improving overall health. Our results suggest that more than 60 percent fewer young adults are relocating to Massachusetts as a result of the law. Finally, we conclude that leading estimates understate the law's cost by at least one third, and likely more.

Our results hold important lessons for the legislation moving through Congress. As in Massachusetts, there has been no effort to estimate the cost of the private health insurance mandates that legislation would impose on individuals and employers. The costs may therefore be far greater than legislators and voters believe, while the benefits may be smaller than the conventional wisdom about Massachusetts suggests.

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"We estimate total new spending to be more than $1 billion in 2008, or 57 percent more than the Massachusetts Taxpayers Foundation formal estimates suggest."

CONCLUSION

"Our analysis of CPS data for 2008 shows that Massachusetts' health law has had a smaller impact on insurance coverages levels and a much higher cost than supporters claim. Gains in coverage have been overstated by nearly 50 percent, while costs have been understated by at least one-third, and likely more. The law has done little to improve overall self-reported health, though it does appear to have crowded out private health insurance and made massachusetts a less attractive place to relocate, particularly for young people."

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