November 17, 2005
By Michael J. New, Ph.D.
It's a problem that vexes policymakers in both parties: reducing
the large number of Americans who lack health insurance. At any
given time, the Census Bureau estimates, about 15 percent of the
total population lacks health coverage.
Many argue for greater government intervention in health care.
How ironic, since government policy, particularly excessive
regulatory intervention, prices many Americans out of coverage and
thus contributes to the high numbers of uninsured.
Examples abound of how health insurance regulations have
increased prices and disrupted insurance markets in many states.
One common regulation is known as guaranteed-issue laws. These laws
make it impossible for insurance companies to reject anyone who
applies for health insurance. This sounds nice in theory, but it
has costs that can price individuals and families out of the
Why? Because in states with guaranteed-issue laws, insurers are
forced to provide coverage for people with pre-existing medical
conditions, so they raise premiums on everyone else to cover these
Plus, individuals in these states will often wait until they're
ill before purchasing the insurance. This raises premiums further.
Worse, many insurers quit offering insurance in states with
guaranteed-issue laws, and the lack of competition results in
still-higher prices and fewer choices for consumers.
Another set of regulations with negative consequences is
community-rating laws, which limit the extent to which insurers can
charge different prices to different individuals. There are a
variety of community-rating laws, ranging from "modified community
rating" to strict community rating, and the strictness also
In practice, the insurance companies, under these rules, are
required to charge healthy and unhealthy people relatively similar
premiums. This sounds nice, too, but these laws can have an impact
similar to guaranteed-issue laws.
That's especially the case in states with strict
community-rating laws. In those states, the low premiums typically
won't generate sufficient revenue to cover higher-risk individuals.
As a result, health-insurance companies end up raising prices on
both healthy and unhealthy individuals, resulting in higher costs
for everyone. Several states, including Massachusetts, New York,
Kentucky, West Virginia, Vermont and New Hampshire, have seen
premiums skyrocket after community-rating or guaranteed-issue laws
Insurance is regulated in countless other ways. Many states
require that all insurance plans cover a variety of providers and
benefits, ranging from chiropractors and infertility treatments to
acupuncture and wigs. To varying degrees, these rules increase
prices as well.
Some states also limit the ability of health care plans to
exclude providers. Other states give subscribers the right to go to
a specialist without a referral from a primary physician. Still
others hold insurance companies liable for harm done to enrollees.
All of these regulations effectively raise prices.
A study I recently completed for The Heritage Foundation shows
that each of these regulations boosts health insurance premiums by
statistically significant margins. A consumer in a state with heavy
regulation could pay up to $100 more a month ($1,200 a year) than a
consumer in a low-regulation state for an identical individual
health insurance plan.
But, some will say, relatively few Americans buy insurance on
their own, so these regulations don't cause much harm. It should be
noted, however, that today the "non-group" market is often a market
of last resort, largely consisting of those without access to
employer-sponsored insurance. Therefore, the cost of its premiums
likely affects whether many of these Americans can afford to
purchase health insurance.
If they are serious about reducing the number of uninsured in
their states, state legislators should review their insurance
rules, repeal those that imposes higher costs than the benefits
they are supposed to deliver, or at least modify them to reduce
health care costs on individuals and families.
Meanwhile, Congress can help. Rep. John Shadegg, R-Ariz., has
introduced the Health Care Choice Act that would allow individuals
and families in high cost states to buy more affordable health
insurance from carriers regulated in other states. As a result,
individuals and families living in states where excessive insurance
regulations have driven up the cost of coverage could then be free
to purchase insurance elsewhere.
State insurance regulations are supposed to protect consumers
and prevent unfair business practices, and many do. Still,
regulations always pose tradeoffs, and it is evident that many
regulations were adopted without giving careful thought to their
relative costs and benefits. State officials need to engage in the
much needed debate over these tradeoffs, and determine how much
health insurance regulation they are willing to impose at the cost
of pricing even more individuals and families out of coverage.
Michael J. New, an assistant professor at the University of
Alabama, is a visiting health policy fellow at The Heritage
First appeared on FoxNews.com
It's a problem that vexes policymakers in both parties: reducing the large number of Americans who lack health insurance. At any given time, the Census Bureau estimates, about 15 percent of the total population lacks health coverage.
Michael J. New, Ph.D.
Assistant Professor of Political Science at the University of Alabama
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