Category Archives: Paul Guppy

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

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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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Twenty-dollar bill in a pill bottle

View: ObamaCare taxes now, services later

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by Paul Guppy
Washington Policy Center Vice President for Research

In the days leading up to the dramatic late-night vote on President Obama’s health plan, Speaker Nancy Pelosi said, “We have to pass the bill so that you can find out what is in it…”

Now that ObamaCare has passed, it is slowly dawning on people what the new law means for the country and for Washington state.

ObamaCare sweeps away a host of state regulations and permanently alters our state’s insurance market. From now on, the federal government will manage the health care of all Washingtonians. The 2,700-page law contains a complex web of mandates, directives, price controls, tax increases and subsidies.

Federal officials will now decide what kind of insurance people in Washington must have, what medicines will be covered, what treatments are allowed and which are not.

Early reports indicate, however, that President Obama, Vice-President Biden, the cabinet, senior members of Congress and leadership staff are exempt.

The new law falls well short of universal coverage. ObamaCare will leave about 6% of Washington residents without coverage. The measure is conservatively expected to cost $2.4 trillion in its first full decade.

Thousands of older Washingtonians will lose their Medicare Advantage coverage, and the state’s 120,000 Health Savings Account holders may need to buy new policies or face stiff penalties.

Washington residents will begin paying ObamaCare taxes this year, while most benefits don’t start until 2014. The law includes some 19 new taxes – here’s a rundown of what Washingtonians can expect in the coming years:

Penalties on individuals: Individuals will pay a yearly penalty of $695, or up to 2.5% of their annual income, if they cannot show they have purchased a government-approved health policy.

Penalties on families: Families will pay a yearly penalty of $347 per child, up to $2,250 per family, if parents cannot show they have purchased a government-approved policy.

Penalties on employers: Business owners with more than 50 employees must buy government-acceptable health coverage, or pay a yearly penalty of $2,000 per employee if at least one employee receives a tax credit.

Tax on investment income: ObamaCare imposes a 3.8% annual tax on investment income of individuals making $200,000 or more and on families making $250,000 or more. The new tax is not indexed to inflation, so more people will fall under it each year. Seniors on fixed incomes and people with IRAs and 401(k) plans will be hit particularly hard.

Tax on “Cadillac” health plans: Starting in 2018, imposes a 40% annual tax on health care plans valued at $10,200 for individuals and $27,500 for families.

Medicare tax increase: Requires single people earning $200,000 or more and couples earning $250,000 or more to pay an additional 0.9% in Medicare taxes.

Tax on Home Sales: Imposes a 3.8% tax on home sales and other real estate transactions. Middle-income people must pay the full tax even if they are “rich” for only one day – the day they sell their house and buy a new one, if the profits push their adjusted gross income above the yearly limits.

Tax on medical aid devices: Creates a new 2.9% tax on medical aid devices. Certain items intended for personal use are exempt.

Tax on tanning: Imposes a 10% tax on services at tanning salons. Business owners will collect the tax from customers and send it to the federal government. This appears to be the first federal sales tax in the United States.

ObamaCare will be enforced by the IRS. The tax agency plans to hire 16,500 new auditors, agents and investigators, and to increase enforcement audits.

The IRS can confiscate tax refunds, place liens on property and seek jail time if health-related penalties and taxes are not paid.

President Obama had said people could keep their coverage if they want, yet the Congressional Budget Office estimates that under ObamaCare eight to nine million people will lose their employer-provided coverage.

The ObamaCare law passed over bi-partisan opposition in Congress. Republicans say they will run on a “repeal and replace” platform this fall, and Washington has joined 12 other states in a lawsuit challenging the federal government’s power to force state residents to buy a product – insurance – from private companies.

The long-term prospects of ObamaCare are unclear. In the meantime, Washingtonians should prepare for major changes in their tax burden.

This article first appeared as a column in the Spokesman-Review.

Paul Guppy is Vice President for Research at Washington Policy Center, an independent non-partisan policy research organization in Washington state.

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Views: Public Option Will Lower Private Health Insurance Premiums . . . to Zero

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By Paul Guppy, vice president for research at Washington Policy Center

paulguppy_2Responding to the concern that setting up a government-run public option insurance plan would inject politics into American health care, public option backers are saying, “Right. And that’s a good thing.”

A recent Washington Post article reports, “Economists in this [pro-public option] camp say a public option would not under price insurers so as to drive them out of business; political pressures from medical providers would restrain Congress just as it is restrained today from limiting Medicare rates too much.”

The article adds, “And the [public] option’s pricing powers would be limited by political pressures against driving too hard a bargain on providers.”

This is a novel argument; bringing “political pressures” into the private marketplace makes the market more efficient.

I’d sure like to know the names of the economists in the public option camp who say lobbying Congress is a form of healthy market competition.

Ample real-world experience shows the opposite. Massive government intervention distorts markets, reduces the benefits of competition, and leads to waste, inefficiency and cronyism, not lower prices and better service.

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