Michael Cannon, director of health policy studies at the Cato Institute, spoke this month before the Missouri House of Representatives’ Interim Committee on Poverty about how Missouri can expand medical coverage to poor residents by embracing freedom and deregulating an insurance industry dominated by special interests.
Mr. Cannon argues that expanding current medical social programs, such as Medicaid and SCHIP (State Children’s Health Insurance Program), is attractive because for every dollar Missouri spends on coverage, the state receives $1.50 from the federal government. But expanding government health care is ultimately unsuccessful, as these programs subsidize health care costs for thousands of non-needy individuals (such as senior citizens with substantial retirement assets), drive up the cost of private medical insurance, and do nothing to address systematic quality programs among low-income recipients.
Worse, however, Mr. Cannon argues that the expansion of government anti-poverty programs snares low-income families in a “low-wage” trap — particularly in heavily subsidized health care states like Missouri. Like most states, Missouri offers various forms of assistance to families with low incomes, and these benefits decrease as wages increase. This means that within certain income ranges, a rising wage will actually decrease annual income, as recipients receive fewer government benefits while they pay higher taxes. Mr. Cannon presents some striking examples of the “low-wage” trap for Missourians:
Consider the case of a single mother of two who lives in Missouri and works full-time:
- If she earns $8 per hour and receives a $2-per-hour raise, her annual income would go down by more than $5,000.
- Her hourly wage could double to $16 per hour, and she would still be more than $2,000
worse off. Just to break even, her hourly wage would have to rise above $18 per hour.
- In other words, if she earns $17,000 and could somehow increase her earnings to
$37,000, she would lose all of that $20,000 to taxes and forgone government benefits.
(Economists would say she faces a marginal effective tax rate of 100 percent.)
This “wage-trap” is inexcusable. Many low-income individuals may not have the means to advance fast enough up the economic ladder to compensate them for their loss of benefits, forcing them to stagnate in poverty.
A better solution would be for Missouri to reduce the monopolistic protectionist polices that are designed to protect the state’s insurance providers. The Congressional Budget Office estimates that state regulations increase the cost of private health insurance by as much as 15 percent. Allowing Missourians to choose their levels insurance coverage (rather than being subject to levels of coverage that are mandated as "appropriate" by officials — such as coverage for chiropractors, and even hairpieces, of all things), and allowing residents to choose coverage from out-of-state insurers, would dramatically decrease the cost of private health care in the state.
Instead, Missouri legislators have consistently bowed down to insurance industry special interests, which continue to bankroll their campaigns.
Real freedom entails freedom of choice, and the responsibility of living with those choices. All I ask is that legislators treat individuals as adults, rather than having the arrogance to treat certain groups (like the poor) as children, always insisting that "We know what’s best."
I like to believe that most people want the same.