When I heard Massachusetts Governor Mitt Romney speak about his health care plan this January, I found him convincing, as would any free market conservative. It is not a market principle, he argued, that we should force other people to pay for goods or services we use. And yet, much of American health care is built around that principle: the government, the company, the health plan—somebody else—has to pay for my health care.

Where liberals press for an employer mandate, just passed in San Francisco but thrown out in Maryland, Governor Romney offers an individual mandate: If you haven't bought insurance, don't show up at the hospital for free treatment. For a taxpayer with health insurance who thinks he's footing those bills at the local hospital, what's not to like?

Unfortunately, the reality of the Massachusetts plan falls well short of its rhetoric. It requires employers who do not provide health benefits to pay a fine of $295 annually. Individuals who do not have health insurance lose their state personal exemption—around $300, according to a leading consultant. (Subsidies for low–income residents not eligible for Medicaid ease the pain of the mandate for them.) But because these fines are well below the cost of buying health insurance, many residents and businesses will elect to pay the fine and shift excess costs back to taxpayers.

The Massachusetts health plan could be worse, but history will likely judge it a step in the wrong direction. It greatly increases the power of the state and providers' interests, without either increasing quality or lowering costs, and makes incentives even more perverse than they are now.

The plan did not directly arise out of a need to address the "crisis of the uninsured," less critical in the Bay State than others, nor the legendary legions of tightfisted, non-paying, patients parading through emergency rooms. Rather, it was needed to preserve $600 million that the U.S. transfers annually to state coffers.

A Medicaid waiver allowed Massachusetts to use the federal money to fund its Uncompensated Care Pool, which paid hospitals' bills when patients would or could not. With the waiver expiring, the hospitals and state politicians had to find a way to keep that money. There are three looming problems with this approach.

First, federal law (EMTALA)[1] requires hospitals to "stabilize" anyone who walks in the door. This, among other regulations, has led to a huge issue of "uncompensated care," to which the hospitals' policy response is appalling. Rather than pushing for insurance reforms, American hospitals use this issue to lobby for protection from competition, such as restricting new hospitals from opening, especially specialized ones owned by physicians. The Massachusetts plan does nothing to change the hospitals' environment, but does keep the subsidy spigot flowing.

Second, although the plan includes some protections from pricey mandates and excessive regulation, they are not robust in the long term. As long as insurers and providers can look to taxpayers to fund new mandates, the pressure to load basic policies with additional bells and whistles will be overwhelming. We should also expect one or two insurers eventually to dominate the market, as we have seen in other state pools. Insurers who expect to reap the benefits are already salivating at the prospect.

This month, Blue Cross and Blue Shield of Minnesota officially took a position in favor of Massachusetts–style universal mandates, even as leading Minnesota politicians discuss how they can emulate the Massachusetts plan.

The company's endorsement makes perfect business sense. If I were a widget maker, and the state proposed mandatory purchase of widgets, I'd be highly tempted to get on board. However, such a policy would neither make the price of widgets decrease, nor the quality increase. It would simply make politically connected widget makers fat and happy.

Third, Massachusetts optimistically expects a brand new agency, efficiently and confidentially, to connect information from people's tax returns, doctors' and hospitals' billing records, as well as private health plans. Excuse my skepticism: government agencies are incapable of stopping the traffic in second–hand social security numbers, or preventing people illegally in the country from getting driving licenses.

The bottom line is that individual mandates and new bureaucracies will not cure an expensive, dysfunctional insurance system. As Greg Scandlen, President of Consumers for Health Care Choices, points out, 47 of 50 states mandate automobile insurance, yet the rate of uninsured drivers is higher than the rate of those without health insurance. People who prefer to remain uninsured, as well as untaxed, will continue to show up at hospital emergency rooms—and federal law continues to demand that they be treated.

Is there anything good about the plan? Well, it re–directs public cash via patients to insurers rather than directly to hospitals. If there are social benefits to any activity, it is always better to subsidize consumption rather than production, so this is a step in the right direction—however malformed. Also, the "insurance exchange," or "Connector," is certainly an innovative way of overcoming the federal tax bias in favor of employer–sponsored rather than individually purchased health insurance.

Imagine a person with three part–time jobs, none of which offers health benefits, able to bundle non–taxable payments from each job into one premium, via the Connector, and shop for individual health care in a competitive, de–regulated market. Unfortunately, the Massachusetts connector is unlikely to evolve into such a system. The Democratic legislature will likely make the Connector as bureaucratic, anti–competitive, and expensive as possible, as soon as it can.

Instead of significantly reducing the obstacles to their voluntarily becoming insured, Massachusetts will simply order its residents to become insured without understanding why they are not. Morally, no matter how badly the government screws up health insurance, the individual should at least have the right to exit. The Commonwealth of Massachusetts is denying its residents that right.

[1] Emergency Medical Treatment and Active Labor Act

John Graham is director of health care studies at the Pacific Research Institute.