Healthcare Incentives

I've apparently been sitting on this post for a while, so this might be (is quite literally) old news for many out there.  It's an op-ed piece from The New York Times from a few months back on the healthcare legislation (No, this it not about IR).   

What caught my eye was at the end of the article when he starts talking about the incentives created by mandating that people obtain health insurance.  The gist of it is that in spite of all of the cries about this legislation representing the onslaught of the communist hoards, this kind of legislation might actually help to promote the capitalist spirit.  Leonhardt (the author) argues that ensuring that everyone has access to decent healthcare and retirement will allow/encourage individuals to take greater risks than they otherwise would.  When individuals get healthcare primarily through their employer, and when individual premiums are generally through the roof, thereby leading many healthy people to not buy insurance if they don't already have it, people will be more reluctant to leave the safety of their cushy corporate or government job for the sake of starting up a business.  Leaving that job means having to provide yourself with insurance at a much higher cost, and this is something that those with a family may be especially reluctant to do.

I think this article has two particularly interesting points.  1) It challenges the typical narrative that surrounds the healthcare by offering a third view, asserting that this does not have to be a zero-sum game between fans of the free-market and fans of social welfare programs, and 2) offers a decent example of the potentially counterintuitive effects that some legislation might have.  

One problem that I have with this argument is that it assumes most individuals are generally worried about the provision of healthcare for their families, and seems to ignore that other important aspect that employment carries—money.  While ensuring your children's health coverage is certainly important, putting food on the table is also important.  If one parent's income can provide for the family so the other parent can give a crack at starting a new company, then that's great.  However, I suspect that many people would still be reluctant to leave their jobs knowing that this will potentially slice their family income in half.  Even if everyone is still covered by the spouse's workplace coverage, that's a pretty big gamble.  This does not mean that Leonhardt's argument is wrong per se, but that it may simply apply to a much smaller subsample of the population than he makes it sound.  I would imagine that this would also have some minor effect in increasing the unemployment rate, if we assume that of all the folks that do decide to take this gamble, the majority will not succeed in starting up a successful business.     

I think this is a generally incomplete picture, but fundamentally serves as a decent example of how the effects of legislation can be counterintuitive because they alter the basic incentive structures that people face.  Granted, it will take several years to find out if the legislation has ever had these sorts of effects.


Michael Flynn

About Michael Flynn

Michael Flynn is currently an assistant professor in the Department of Political Science at Kansas State University. He received his Ph.D. in Political Science from Binghamton University in 2013. His research focuses on the political and economic determinants of foreign economic and security policy, security issues, and state repression.

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