View: State’s mandates drive up health costs, reduce access to coverage

by Paul Guppy
Vice President for Research
Washington Policy Center

In June 2002, Washington Policy Center published a study showing how state-imposed mandates add to the cost of health insurance. Since then state lawmakers have added new mandates, and the cost of insurance has continued to rise.

In 2002, Washington officials imposed 47 mandates on health benefits. Today the state has 57 mandates.

Over the same period health insurance premiums in Washington and nationwide increased from an annual average of $3,080 for individuals and $8,000 for families, to $4,800 for individuals and $13,400 for families. [1]

At the same time, the number of uninsured in Washington now exceeds 800,000 people, or 14.2% of the population. [2]

Each time lawmakers adopt a new mandate, proponents confidently predict the policy change will increase the affordability and accessibility of health care coverage, while in fact research shows the opposite has happened.

Health care mandates are laws that restrict and determine the provision of certain health care services. In many cases insurance customers would choose these mandated services anyway, and to that extent mandates have little or no impact on the insurance market.

Also, a number of mandates are relevant to only a small patient population or only apply to uncommon medical procedures, and by themselves do not add much cost.

Taken together, however, mandates impose significant cost on the health insurance market. State-imposed mandates carry the force of law, and they interfere directly in the voluntary relationship between buyer and seller.

Mandates mean people are forced to pay for coverage they may not otherwise choose. This leads to a “crowding out” effect – coverage customers prefer is not available because insurers must offer the mandated benefits instead.

There is a mistaken belief that mandates are steps toward a core benefits package. The history of mandates over the last 45 years indicates this is not the case. There is no “ideal” benefits package guiding the enactment of mandates. Mandates are the result of interest group pressures, lobbying by medical associations, and haphazard politics over time.

Interest groups that promote new mandates are not seeking access to payments from the public treasury. The cost of the benefit they seek is not borne by taxpayers. It is passed on to insurance customers in the form of higher prices, restricted choices, or both.

In return elected officials gain the political support of the interest groups or patient advocates working for passage of new restrictions.

Meanwhile, the rapidly accumulating cost of mandates remains hidden from the broader electorate. The hidden costs are real nonetheless, and by driving up prices mandates contribute significantly to reducing access to affordable health coverage.

Growth of Mandates

Beginning with a single access-to-provider mandate in 1963 (for chiropody), the number of new mandates and enacted changes to existing mandates in Washington has now grown to 57.

A review of these finds two distinct periods of rapid growth in the number of new mandates and in changes to existing mandates.

Between 1982 and 1990 the number of mandates tripled from 10 to 30, and from 1993 to 2001 their number increased a further 50 percent. Since 2001 lawmakers have steadily added one or two new mandates every year.

Such an extensive set of legal restrictions would have substantial effect on any industry. It is therefore not surprising that mandates have a major impact on health insurance price and availability. A number of studies have found a clear link between the level of mandated benefits and a higher cost of health insurance.

A study by PriceWaterhouseCoopers examined the factors that make up health care spending and found that state-imposed mandates drive up health care costs.

“Each mandate adds its own cost, and collectively they have significantly increased health care costs.” The study concluded that, “These estimates suggest that mandates have a huge overall impact on health care costs.” [3]

While the incremental cost of each additional state-imposed mandate may seem small, the cumulative effect over time is enormous. The study found that over just one year, 2001 to 2002, “the contribution of mandates and government regulation is estimated to be about…15% of the overall [one year] increase, representing $10 billion of the overall increase in health premiums.” Researchers found that 20% to 25% of the number of uninsured people was due to the presence of state mandates. [4]

The Collapse of the Individual Market

By the late 1990s state lawmakers had so heavily burdened the sale of health insurance with regulations and mandates that the individual market collapsed.

Major insurers, including Premera BlueCross, Regence BlueShield and Group Health, were forced to pull out of the individual market because of massive losses on the policies they had issued.

In 36 of the state’s 39 counties individuals could not buy coverage at any price, and in the remaining three counties prices skyrocketed beyond the reach of most people’s ability to pay.

Firm action by the legislature in repealing the most restrictive mandates brought the individual market back to life.

The episode starkly demonstrates the damage state-imposed mandates can have when they drive the cost of health insurance to the point where it no longer makes sense for insurers to offer coverage at all.

Policy Recommendations

State lawmakers can make two key policy changes that would ease the burden of state-imposed mandates and make health insurance more affordable for all Washingtonians.

1. Legalize basic insurance.

Basic health insurance is not legally available in Washington. Effective reforms would legalize basic, low-cost health insurance in Washington, especially for people in the 19 to 34 age range, those most likely to go without coverage because no cost-effective policies are available for them. Exempting coverage from state-imposed mandates, especially for this age group, would allow pricing that reflects its actual value to consumers.

2. Allow the interstate sale of health insurance.

Washington lawmakers should enter into a compact with other willing states to create a large, competitive market for health insurance, instead of forcing residents to shop only in Washington’s restricted state market.

Conclusion

For lawmakers, state-imposed mandates may seem “free” because they do not appear as line items in the annual budget, even as they secure the political support of the interest group that stands to gain from each mandated benefit. While a small number of mandates may have little or no impact, their cumulative

cost over time, though hidden, is quite high. The cost appears in the form of rising premiums for health insurance and in the consequent increase in the number of families and business owners who cannot afford insurance.

Effective reform would move personal decisions about health care away from the political process and closer to the patient. Fewer mandates, greater patient choice and vigorous price competition among insurers would promote access to affordable, high-quality health care for all Washington citizens.

References:

1 “Employer Health Benefits,” Annual Survey 2009, The Kaiser Family Foundation and Health Research and Educational Trust, at www.ehbs.kff.org/pdf/2009/7936.pdf.

2 U.S. Census, “2006 Health Insurance Status for States, Washington, Small Area Health Insurance Estimates, at http://smpbff1.dsd.census.gov/TheDataWeb_HotReport/servlet/HotR eportEngineServlet?reportid=90d4aac94ca4506912a04df088f6a76a&emailname=saeb@census. gov&filename=sahie06_st.hrml.

3 “The Factors Fueling Rising Healthcare Costs,” PriceWaterhouseCoopers, Washington, D.C., April 2002, pages 6 and 7, at www.ahipresearch.org/pdfs/PwCFinalReport.pdf.

4 Ibid, page 7 and Table 1, “The Factors Driving Rising Costs in Healthcare Premiums (2001-2002).

5 Sources: “Mandated Benefits in Washington State,” Policy Division, Washington State Office of Insurance Commissioner, January 10, 2002; and “Health Insurance Mandates in the States, Washington,” Council of Affordable Health Insurance, 2009.

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Tags: Health Insurance Mandates, Washington Policy Center

Category: Paul Guppy