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Scott Gottlieb, M.D.
Laughing gas can be useful during complicated dental procedures, but should every health plan be required to cover it and should health insurance cost more because of it?
Barack Obama thinks so. As a state senator in Illinois, he voted to require that dental anesthesia be covered by every health plan for difficult medical cases. Today, the requirement is one of 43 mandates imposed by Illinois on health insurance, according to the Illinois Division of Insurance. Other mandates require coverage of infertility treatments, drug rehab, “personal injuries” incurred while intoxicated, and other forms of care.
By my count, during Mr. Obama’s tenure in the state Senate, 18 different laws came up for a vote and passed that imposed new mandates on private health insurance. Mr. Obama voted for all of them.
Often the care that is being mandated is for minor medical problems because small, routine ailments are suffered by more people and therefore have broader political constituencies.
As a presidential candidate, Mr. Obama says people lack health insurance because “they can’t afford it.” He’s right. But he is also partly responsible for why health insurance is too expensive. A long list of studies show that mandates like the ones Mr. Obama has championed drive up the cost of insurance for the very people priced out of coverage.
A 2008 study by an insurance-industry supported research organization, the Council for Affordable Health Insurance (CAHI), estimates that mandates increase the cost of basic health coverage by 20% to 50%, depending on the state. Average policies in high-mandate New Jersey cost about $4,000 according to a 2004 insurance survey, much more than the $1,200 charged in low-mandate Wyoming.
CAHI estimates that there are 1,961 state-mandated benefits across the country. It’s not just specific products and services that get mandated, but also whole categories of providers like chiropractors and psychologists. By one count, states have enacted about 500 laws mandating coverage for 25 different types of providers.
States also mandate new categories of eligibility that force small businesses to cover additional dependents. One popular measure is the “slacker mandate,” which extends coverage to unmarried dependents under the age of 30.
Not all mandates are equally expensive. Drug rehab, for example, increases a plan’s premiums by 9% on average, according to America’s Health Insurance Plans (AHIP). Coverage for psychologists adds 12% to premiums. But in total, in some states mandates increase the cost of insurance from 10% to 20%, according to AHIP.
These increased costs aren’t shared equally among all who have health insurance. People who are covered through self-insured employers (usually large corporations) are shielded from state mandates because of the federal Employee Retirement Income Security Act (ERISA), which prevents states from enacting controls on plans that cross state lines.
The burden of paying for state mandates is usually borne by individuals who buy their own insurance, small employers and others not covered by ERISA. In total, about half of the people who have insurance bear the brunt of the cost of state mandates. And, as it turns out, individuals who do not work for large corporations are much more likely to be uninsured. AHIP calculates that between 20%-25% of uninsured Americans can’t afford coverage because of the increased cost of providing mandated care.
It doesn’t have to be that way. If insurers were allowed to offer “bare-bones” plans–which would be cheaper because they would cover just essential care–many consumers who are priced out of health insurance now would likely buy these plans instead of living without insurance.
State mandates even hurt those who have insurance because they prompt insurers to cut back on coverage for catastrophic illnesses. This undermines the purpose of insurance by turning policies into prepaid health care rather than security from the economic consequences of serious medical problems. And because many mandates define the duration and scope of specific benefits, they lock in treatment standards that grow outdated as knowledge advances. That can diminish incentives to find more effective ways of delivering medical care.
Why, then, do we have mandates?
For the simple reason that each mandate has a powerful constituency–be it chiropractors, dentists or other groups–who benefit when their services are included on the list of mandated care. These groups pressure lawmakers to expand the list of mandates and, over time, the list grows to be very long and expensive. Often the care that is being mandated is for minor medical problems because small, routine ailments are suffered by more people and therefore have broader political constituencies.
One way to make insurance more affordable is to extend the benefits of the ERISA exemption to people who buy insurance on their own, putting them on a level playing field with those who get coverage through large employers by freeing them from expensive state insurance laws.
Most insurance plans would still cover important health-care items such as prenatal HIV testing or routine colon cancer screening or bone density tests–three additional mandates Mr. Obama helped enact in Illinois. But without government mandates, plans would also have the flexibility to offer lower-priced insurance options.
Better still, Congress could pass legislation that has long languished in the House allowing people to purchase health plans across state lines. People could choose which state regulations to buy into, creating a market for the insurance mandates. This would give states more incentives to fix local problems that have helped make health insurance expensive in the first place. It’s a fair bet that there would be an exodus of policyholders from higher-cost, higher-mandate states like New Jersey and even Illinois (which has more expensive mandates than about half of the other states).
Mr. Obama says people need more options to purchase insurance outside the workplace. He also says he can draw on his experience as a state legislator to lead a reform of the kinds of special interests that pursue these mandated benefits. Right now Mr. Obama’s health-care proposal, like Hillary Clinton’s plan, does the opposite by adding federal regulations on top of state laws.
“My plan emphasizes lowering costs,” Mr. Obama says. If that is really what he wants to do, he can start by freeing consumers from forced subsidization of the pricey state mandates. Given a choice between the lower costs he promises and subsidized dental anesthesia he has delivered, some would opt for the affordable health insurance and make do with some extra Novocain.
Scott Gottlieb, M.D., is a resident fellow at AEI.
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