Capitol Comment 219 – Governors and State Legislators are Shooting Consumers in the Foot With Health Insurance Regulations

As states look for ways to improve health care quality and affordability, many are turning to increased regulation — which does the opposite.

Whether intended to expand access to particular types of coverage (health benefit mandates), require health insurers to take all comers (guaranteed issue), or make coverage affordable through price controls (community rating), health insurance regulations actually increase costs and restrict access to coverage.

Health insurance regulation is growing at an explosive rate.

In 1967, state governments had enacted only 18 laws requiring consumers to buy particular types of health coverage. Today, there are over 950, including mandatory acupuncture, chiropractic, and podiatrist coverage.1

Regulation increases the cost of insurance.

The 12 most common health coverage mandates increase the cost of coverage by as much as 30 percent.2

A mandated point-of-service option (which would require HMOs to reimburse out-of-network doctors) could increase all HMO premiums by 4 percent.3

Health insurance regulations increase the number of uninsured.

A study of the 16 states that passed the most health insurance regulations between 1990 and 1994 found the uninsured population grew eight times faster in those states (8.14 percent in 1994) than in the remaining 34 states (1.02 percent).4

In 1993, New York state tried to expand coverage by imposing community rating (i.e. price controls) on certain types of health insurance. Premiums for young people doubled or tripled, nine insurance companies left the New York market, and nearly 90,000 New Yorkers dropped their health coverage. According to the Urban Institute, states with guaranteed issue and community rating “have not been successful in expanding [individual] access to insurance; in fact they have tended to decrease overall coverage.”5

Guaranteed issue and community rating on employer-purchased coverage increase the probability a person will be uninsured by as much as 29 percent. In the individual market, they increase the probability of being uninsured by as much as 11 percent. Mandated mental health coverage “increase[s] the probability of being uninsured by almost six percent.”6

In states “where alcohol or drug treatment mandates exist, [the percentage of people with] private coverage is two percentage points lower” than in other states.7

The number of uninsured Americans has grown from 32 million in 1987 to 43 million in 1997. If current trends persist, 53 million Americans will be uninsured in 2007. An economic downturn could boost that number to 60 million — meaning “almost one of every four non-elderly Americans would lack health coverage.”8

Governors and state legislators should follow this simple rule: If you want to expand health insurance quality and affordability, let consumers select their own health coverage. To give consumers greater choice and control, states should repeal expensive regulations; eliminate unfair tax provisions that give discounts to consumers only if they let their employer select their health coverage; and expand the availability of tax-free medical savings accounts (MSAs). Without increasing taxes, regulation or government spending, a federal MSA pilot program has signed up one previously uninsured person for every two enrollees who already had coverage. States should build on this success story.

1Susan Laudicina et al., State Legislature Health Care and Insurance Issues: 1997 Survey of Plans, BlueCross BlueShield Association, January 1998.

2John C. Goodman and Merrill Matthews Jr., “The Cost of Health Insurance Mandates,” Brief Analysis, National Center for Policy Analysis, August 13, 1997.

3Timothy D. Lee, et al., “Actuarial Analysis of the Patient Access to Responsible Care Act (PARCA),” Milliman & Robertson, Inc. (Brookfield, Wisconsin), November 7, 1997, p. 8.

4Melinda L. Schriver and Grace-Marie Arnett, “Uninsured Rates Rise Dramatically in States with Strictest Health Insurance Regulations,” Heritage Foundation Backgrounder, August 14, 1998.

5Leah E. Braesch and Michael Harrold, “Risky Business: Insurance, Risk Classification and the Consumer,” Citizens for a Sound Economy Foundation Capitol Comment, No. 162, June 25, 1997; and Jill A. Marsteller et al., “Variations in the Uninsured: State and County Level Analyses,” The Urban Institute, June 1998.

6William S. Custer, Ph.D., “Health Insurance Coverage and the Uninsured,” Health Insurance Association of America, December 1998, p. 18.

7Marsteller et al., p. 53.

8Custer, p. 8.