Easy Ways to Make Health Insurance More Expensive

There are easy ways to make health insurance less expensive, and easy ways to make it more expensive. Unfortunately, Congress appears determined to look only at the latter.

Last September, the federal government – operating under a Republican-led Congress, no less – decided to begin mandating health insurance benefits, dictating what procedures and therapies health insurance policies must cover.

We now have the first two mandates: requiring insurers to cover a minimum maternity stay of 48 hours, and forcing insurers and employers to cover mental health care needs to the same amount they cover traditional health care needs.

Were the Congress going to stop there, it might not be so bad. But both Republicans and Democrats are gearing up to introduce many more mandates in 1997, which will make health insurance more expensive and result in people losing their coverage.

It's not as though we don't have any experience with government-mandated health insurance benefits. The states have been imposing mandates on health insurance for years. Though there were only eight state-mandated benefits in 1965, there are well over 1,000 today, requiring insurers to cover providers such as chiropractors and treatments such as drug and alcohol abuse, but they can also require coverage for non-medical expenses such as hairpieces and pastoral and marriage counseling.

Studies in six states have found that mandated coverage accounts for between 7 and 21 percent of all insurance claims, depending on the state. As a result, the cost of health insurance has increased. For example, one study found that mandated coverage increases insurance premiums by 6 to 8 percent for substance abuse, 10 to 13 percent for outpatient mental health care and 21 percent for psychiatric hospital care for employee dependents.

Those premium increases drive up costs and the number of uninsured. By one estimate, one out of every four uninsured people has been priced out of the market by state-mandated health insurance laws.

As Congress proceeds to consider imposing more health insurance mandates, every type of health care provider not typically covered by a standard health insurance policy will be knocking at Congress' door wanting its product or profession covered. Members of Congress will be inundated with special-interest pleas claiming that by covering their product or service, the government, insurers and employers will save money. The truth is that, on average, they only increase the cost of insurance.

And the reason is simple: Though some health care providers (e.g., chiropractors, podiatrists, licensed counselors, etc.) do provide medical services for lower prices than physicians, many more people use those services once they are covered by insurance.

Moreover, once the mandates are in place they are almost impossible to repeal. A few states have tried to go around their mandates so that small employers could have access to a less-expensive, "bare bones" policy, but repealing mandates is politically difficult and most legislators do not want to face the turmoil.

Finally, though Congress is targeting insurance and managed care companies with its mandate legislation, the primary impact will be on large businesses that self-insure – because they will be paying the additional costs.

The Employee Retirement Income Security Act (ERISA) permitted larger employers to self-insure (i.e., pay health care claims themselves rather than going through an insurance company). The act also placed self-insuring plans under federal law rather than state laws, so that states could not regulate the self-insured companies or impose mandates on them. That ability to be free of mandates has made self-funded plans very popular among employers, with about two-thirds of the employers who converted to self-insured plans doing so to avoid state regulations. Furthermore, an estimated one in five small firms that are not offering health benefits would do so in an environment free of state-mandated benefits.

Thus, passing federal mandates is going to undermine the expanded coverage that has come about as a result of ERISA.

The issue involved is not whether the proposed mandated benefits will benefit some people. Mandated benefits always benefit somebody. The issue is whether the federal government is going to continue telling employers, insurers and managed care companies what they must cover.

The 104th Congress came in on a pledge to stop imposing unfunded mandates on the states – requiring them to provide costly services but refusing to provide the money for those services. Unfortunately, it never took such a stand for private-sector businesses.

In the past, Congress drove the states to the brink of bankruptcy with those unfunded mandates. Is the 105th Congress about to do the same for business?