Health-insurance mandates inflate premium costs
by Ari Armstrong, April 21, 2007
In a free society, people have the right to voluntarily contract for services, including medical care and insurance. But medicine is subject to a host of government controls.
Some people, such as a recent poster to the Rocky Mountain News web page, maintain the fantasy that the U.S. system is "market-based" and "privatized," and they point to problems in medicine as a pretext to impose "a socialized system of single payer healthcare in this country."
The reality is that the U.S. has a "partly socialized health care system today," to quote David Gratzer's book The Cure, and that's the source of existing problems. U.S. medicine remains excellent to the extent that it remains free. More government controls will only make matters worse. More liberty will make medicine better.
While a complete review of the myriad of federal and state controls on medicine would take far more space than a single article or even a hefty book, we can cover some of the highlights, with an emphasis on mandates placed on health insurance.
As I reviewed previously, federal tax distortions created high-cost, non-portable, employer-pay health insurance. This effectively transformed much insurance into pre-paid medical care, largely separating the costs of medical services from those receiving the services. The relationship between doctors and their customers increasingly involved the third-wheels of insurance agents and government bureaucrats.
Brian Schwartz summarizes some of the effects in his proposal to Colorado's "208" Commission for Health Care Reform (colorado.gov/208commission): "Health care costs have been increasing because federal tax policy and state-level mandated benefits encourage insurance policies to offer too much coverage [per person], not too little. This escalates costs such that too few people [have] access to adequate health care." (Schwartz's proposal, "FAIR Health Care: Free-markets, Affordability, & Individual Rights," includes the results of some of my research for some points.)
The government also largely took over the funding of medical care. Gratzer writes, "Of every dollar spent in the United States, roughly 46 cents comes directly out of local, state, or federal coffers."
In the mid-1990s, state and federal governments subjected health insurance to a myriad of controls and mandates. As a political condition of conducting business, insurance companies that provide employer-based insurance generally must offer only policies that are "guaranteed issue" and based on "community ratings." Basically, that means that insurance companies are forced to accept everyone at strictly controlled rates regardless of health. Such controls effectively force the healthier people in the insurance pool to subsidize those with higher expenses. Some drop their insurance rather than pay the high premiums.
On April 12, the House passed Bill 1355, which would repeal the moderate "ratings flexibility" passed in 2003. Former legislator Mark Hillman credits such flexibility for more businesses offering insurance (see "Finally, good news about health insurance" at MarkHillman.com).
Politicians in Colorado and other states have partly overridden the right to voluntary contract by subjecting insurance to all sorts of benefits mandates. According to "Health Insurance Mandates in the States 2007," from the Council for Affordable Health Insurance, Colorado imposes 46 mandates. The report states, "Based on our analysis presented in this paper, mandated benefits currently increase the cost of basic health coverage from a little less than 20% to more than 50%, depending on the state."
This year, the legislature considered more mandates. House Bill 1301 would require "that certain health insurance policies provide coverage for cervical cancer immunizations." Senate Bill 36 would mandate "the inclusion of certain additional mental disorders in the mandatory health insurance coverage for mental illness..." Interestingly, the Mental Health Association of Colorado claimed to be the "primary architect and advocate behind" the bill.
Such mandates force some in the insurance pool to subsidize others, and they increase the cost of insurance and thereby reduce the number of people with insurance. Schwartz recommends that all benefits mandates be repealed. Schwartz's proposal describes one result of repealing the mandates: "Those politicians who gain by delivering the 'concentrated benefits' of mandates to special-interest groups will no longer be able to do so." This is but one of several sensible reforms that Schwartz offers.
The claim that medicine is governed by a "free-market" is ridiculous. We live in a mixed system, partly free, partly controlled. American medicine remains the best in the world because America's heritage of liberty remains partly intact. Those who claim that existing problems are the result of what freedom is left grossly misdiagnose the disease. The disease is political interference in medicine. The cure is respect for individual rights.
Ari Armstrong is a senior fellow with the Independence Institute and edits FreeColorado.com. He and his wife, previously uninsured, recently applied for high-deductible individual health insurance in conjunction with a Health Savings Account.