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POLICY/HEALTH PLANS: Wow, a loony libertarian unwittingly tells the truth on benefit mandates

In the mass of verbiage about the Schwarzenegger plan, you can find the odd interesting nugget. David Henderson from Hoover—writing in that bastion of reasoned clarity, the editorial section of the WSJ—admits that the impact of state mandated benefits on the costs of insurance aren’t that great.

It is important, though, not to overstate its benefits. The gain to Californians from abolishing these mandates would not be huge. CAHI compiled data from America’s Health Insurance plan (SIC—I assume he means AHIP the health plans trade group) and eHealthInsurance for the individual market and from the federal government for the small-group market and found that in 2003, although California had more mandated coverages than all but six other states, it had among the lowest insurance rates for individual health insurance policies ($1,885 versus a top rate of $6,048 for New Jersey.)

OK, so in the rest of his article he’s slagging off Arnie-care but in that part he gets it at least factually correct. That is in contrast to plenty of others who should know better, including Larry Glasscock the CEO of Wellpoint. Here’s what he said about the matter in an interview I’ve already derided:

John, while the Massachusetts plan represents a step forward in trying to find solutions for the uninsured, I have several concerns about its individual mandate. Under the new law, individuals are only required to obtain coverage if it is "affordable" for them. But the Massachusetts law, as I understand it, preserved all of the commonwealth’s existing benefit mandates, so it is difficult to see how health insurance coverage under the new program will be any more affordable once the mandate to purchase coverage becomes effective than it is today.

It’s obvious that the relatively few, though much attacked, state-mandated benefits—such as wigs for chemotherapy patients—only add a small proportion to the overall cost of health care. And because of the bizarre, but set in stone, ERISA law which prevents all state regulation of benefits for self-insured corporations, state-level mandates only apply to small businesses and individual fully-insured plans. Yet they are cited time after time as being the draconian regulations that if only small businesses and individuals could get out from underneath of, well then a Federally-regulated “association health plan” (or whatever they’re being called these days) could provide insurance plans at a rate so cheap that everyone could buy one. And the of course uninsurance would disappear.

Henderson, though, uncovers the uncomfortable “fact” that despite all those state mandates, Californian insurance rates are incredibly cheap compared to other states—or at least are in the survey he discovered (again one much derided on THCB). Of course it is state regulations that make insurance expensive in New Jersey and Massachusetts and cheap, for some people, in California. But that’s got nothing to do with benefit mandates about types of care that are covered—it’s because of the way the structure of insurance is regulated. In those expensive states community rating, guaranteed issue and the like is mandated. That cheap California coverage is only for healthy people in high deductible plans. So the argument that getting rid of state mandates for particular types of benefits would enable small businesses and individuals to buy low cost insurance is rubbish. It’s getting rid of community rating that would do it, and then of course only for the healthy people who would be attractive to purveyors of underwritten insurance.

And of course if you go down Henderson’s line you’d abolish community rating, and put everyone in the individual market with voluntary grouping—which would emerge around health status. Take that to its logical extension (which I’m afraid both the loony and the sensible libertarians are loathe to do) and you end up with a bunch of plans competing to insure the healthy people who don’t really need coverage, and a bunch of sick people who can’t get it at all. After all if the “pool” is made up of people paying $1,885 a year, and average expenditure is over $6,000 a year, then by definition that pool is not going to be able to cover the people for whom costs are above the average. Which is of course the point.

So getting to universal “coverage” by getting everyone into a high-deductible plan will leave someone else (the taxpayer, the provider or the patient) picking up the tab. Which is why Schwarzenegger and Romney’s non-explicit reliance on them is doomed to failure.

And it’s incredibly ironic that those on the libertarian right, who don’t believe in compulsory universal insurance of any kind, don’t seem to have noticed one tiny little thing. The states which allow underwriting, like Texas and California, have much higher rates of uninsurance than those like Massachusetts and New Jersey that ban it. So how extending the ability of insurers to sell underwritten insurance products in those states is supposed to reduce uninsurance overall, I’m just not sure.

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Tom QuigleyJohn FembupjdHerbal HealthMichael F. Cannon Recent comment authors
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Tom Quigley
Guest

Everyone why doesn’t the employer give a tax free allowance to buy HDHP and set up a benefit plan on his/her own and pick up the deductible until the insurance carrier pays the rest? The savings alone offsets the risk to the employer and the employer only pays for reality on the first 5k or 10k of claims. Still gets the network discount and peace of mind knowing all of the employees are covered. By the way this is what we do and every employer in America can to because there is a 50 plus tax law that allows you… Read more »

Michael F. Cannon
Guest
Michael F. Cannon

JD/John-
I agree. Health care and health insurance are different animals. Though each can increase the cost of the other — greater utilization can increase insurance premiums, and more extensive coverage (whether mandated or otherwise) can increase utilization — it’s important to look at them separately whenever possible. I’m presently trying to get going a research project that would try to untagle the effects of variation in treatment intensity and variation in insurance regulations on the price of health insurance.

John Fembup
Guest
John Fembup

“NOT just because people in Minnesota tend to be healthier than other states, but because even when they do get sick, the medical system delivers care in a more economical and sensible manner than other states.” jd, I think you have this exactly right. “Mandates” are about insurance, not health care. The cost of insurance is a symptom of the problem we have but this symptom arises from a deeper problem – the cost of health care. Health insurance is expensive because health care is expensive. If the cost of health care were not rising, the cost of health insurance… Read more »

jd
Guest
jd

Michael, Your reference to California and Minnesota as high-mandate states is a perfect example of why mandates are not a major part of the problem for affordable health insurance (or, more generally, affordable and fair healthcare). Minnesota has one of the lowest per capita healthcare costs in the nation. This is NOT just because people in Minnesota tend to be healthier than other states, but because even when they do get sick, the medical system delivers care in a more economical and sensible manner than other states. In short, there isn’t as much screwing around by the provider community. I… Read more »

Herbal Health
Guest

“So getting to universal “coverage” by getting everyone into a high-deductible plan will leave someone else (the taxpayer, the provider or the patient) picking up the tab. Which is why Schwarzenegger and Romney’s non-explicit reliance on them is doomed to failure.”
A high deductible is simply a high deductible, nothing more. It means more money out of your pocket, before the deep pockets kick in.
Most taxpayers CAN afford a little more money if the deductible is higher. Hardly … “doomed” … geez!

Michael F. Cannon
Guest
Michael F. Cannon

Matthew, you are undoubtedly correct that no one will notice the cost of a wig mandate. Or a hearing-aid mandate. But what about 49 mandates (CA)? Or 62 (MN)? It’s difficult to get a handle on the added cost, but it’s probably less negligible than Henderson suggests. One reason that proposals to let people buy health insurance licensed in other states are appealing is that some state might strip out all the mandates and rating restrictions. Then (clutch my pearls!) consumers would only have to buy what they want to buy, and we’d really get a handle on the cost… Read more »

Jack
Guest
Jack

It is morally and ethically wrong, in my opinion, to deny care to the sick. All this talk, posturing, metaphors, it does nothing for the sick. Actually I take that back; it cruelly prolongs the very real suffering just because healthy rich people don’t think they will ever actually end up dependent on one of these “policies” controlling every aspect of their lives. How many people suffer every day because they can not get the medical help they need? How many people die every day because their policy didn’t “cover”? How many people die because they run out of money?… Read more »

Tim
Guest
Tim

Eric, the myth of larger groups getting better rates is just that. GM has thousands of employees. Have you seen what their rates look like? Not pretty. Association plans? Same thing. You get a what… 3% discount that you never really see anyway? You just feel better because they told you you are getting a discount. If everyone woule wake up and realize that the benefits they want and the insurance they buy are two different things. The vast majority of people in this country have no idea what their employers are actually paying for covering them with health insurance.… Read more »

Barry Carol
Guest
Barry Carol

Matthew, I think Governor Romney’s implicit assumption regarding the better paying employers and the public sector continuing to provide comparatively generous health benefits is probably reasonable. He assumes Medicare and Medicaid stay as is. The state and local public sector will likely continue to provide generous health coverage. Large private employers, including universities, medical centers, etc. are assumed to view decent health insurance as a necessary part of the compensation package to attract good quality employees. Employees, for their part, due to the favorable tax treatment given to employer provided health benefits, prefer to take more of their compensation in… Read more »

Stuart Browning
Guest

I think what Mr. Holt is saying is that he knows that immigrants in Texas and California are probably the biggest factor in the higher numbers of uninsured there – not the evil insurance companies – but, he wishes that I wouldn’t point that out because it undermines his little tirade about “looney” libertarians.

Matthew Holt
Guest

Eric. I’m not denying that mandates and other waste clearly increase the cost of care and therefore insurance. And it’s also true that the distribution channel and scale effects of selling to smaller business also increases the cost. But it’s clear that the overall point is that true average community rating can’t be done if the whole system went to $200 a month HDHPs. The math just doesn’t work. Romney et al assume that if they introduce non-underwritten HDHP community rated plans that the remainder of the private (e.g. higher paying employers)and public insurance market will stay as they are.… Read more »

Stuart Browning
Guest

Mr. Holt is strongly implying that high rates of uninsurance in Texas and California are due to the freedom that insurance companies have there to underwrite policies.
Where’s the peer-reviewed study for this Mr. Holt?
Don’t you think there might be other reasons?

Barry Carol
Guest
Barry Carol

Matthew, Governor Romney, in discussing the Massachusetts plan at a conference last year, claimed that eliminating excessive mandates (such as in vitro fertilization, drug and alcohol rehab, etc.) could have made it possible to provide an “affordable” health insurance policy in Massachusetts for $200 per month with community rating as opposed to $350 per month (for single coverage) with the mandates. He was not able to convince his overwhelmingly Democratic state legislature to do so, however. The very high per capita healthcare costs ($6K or so) reflect well above average aggregate payments on behalf of Medicare patients and Medicaid patients… Read more »

Eric Novack
Guest

Matthew- no time to belabor this today… but the advantage of association health plans or small business health plans is this— companies with more than 1000 employees on avergae have insurance rates 18% lower than small businesses.
The impact on mandates is only important to the organizations who desperately fought the measure in Congress last year… chiropractic orgs, and other disease-specific lobbying groups…