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March 20, 2011

Benefit Requirements Will Raise Health Costs

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The Patient Protection and Affordable Care Act gives federal health bureaucrats sweeping powers to impose detailed benefit requirements that will affect Americans' health insurance. These top-down requirements will affect job-based health plans as well as major medical policies sold by insurers - effectively standardizing health-insurance benefits, decreasing patient choice while also increasing coverage costs and stifling insurance innovation.

After passage of the act last March, President Barack Obama addressed the nation, promising that this law would offer more insurance options: "This reform gives you a chance to be a part of a big purchasing pool that will give you choice and competition and cheaper prices for insurance." However, the law does the opposite, by putting more power in the federal government, which is expected to bring higher premiums and less choice.

Obamacare adds numerous health-care services that insurers must cover and, in some cases, restricts the ability of insurers and employer self-insured health plans to impose limits on the amount of services that patients can consume. This combination will drive up health-plan costs and premiums for both individual insurance and employer-group coverage.

Specifically, the provisions in the new law impede patient choice and drive up premiums by:

Expanding Health and Human Services authority. The law's benefit-setting provisions will result in a uniform, federal-minimum benefit package dictated by the Health and Human Services Department from 2014 onward. Since the law also instructs HHS to "periodically update" this minimum-benefit package, insurers and employers will likely need to alter their plans each year to remain compliant. Further, the law grants more health-insurance authority to unelected federal bureaucrats than state legislatures have ever granted to state insurance regulators. How HHS chooses to exercise that new authority will determine the intrusiveness and cost of new benefit mandates.

Creating uncertainty and legal jeopardy. In drafting terms for preventive services, Congress managed to achieve the paradoxical feat of being overly prescriptive and unsettlingly vague at the same time.

One new preventive-care rule says that health plans must pay for "intensive behavioral dietary counseling for adult patients with hyperlipidemia and other known risk factors for cardiovascular and diet-related chronic disease." The regulation has no further clarification. Thus, employers and insurers are left to determine how much of those services, and which patients, the law requires them to pay for - with the potential for litigation if a beneficiary disputes the interpretation.

Inviting more special-interest lobbying. As insurance-benefit mandates at the state level show, health-care providers and patient-advocacy groups will pressure HHS and Congress to expand the scope of the federal minimum-coverage requirements. To the extent that Washington bows to that pressure, health insurance premiums will likely escalate even more after 2014.

Causing major premium increases. In general, premium increases resulting from the new federal requirements result from three factors:

• Mandated reductions in patient cost-sharing will mean that insurers must pay more of the cost for services they already cover, thus shifting those costs from patients onto plan premiums.

• Prohibiting this kind of cost-sharing will stimulate greater use of those services, further increasing premiums.

• Premiums also jump because new federal regulations require plans to cover benefits or services that were previously excluded or subject to limitations.

Like many other provisions of the health-care law, the federal benefit mandates are unprecedented, unwarranted and undesirable. When fully implemented, they will exceed insurance intervention in size and scope for even the most regulatory-oriented state governments.

Instead of the federal government regulating health benefits, states should make their insurance markets more responsive to patients' needs and preferences by enacting their own health reforms. A good move would be to create new incentives for insurers, doctors and hospitals to provide value and for consumers to seek better value in health insurance and medical care.

Edmund Haislmaier is a senior health fellow in the Center for Health Policy Studies at The Heritage Foundation.

First appeared in The Colombus Dispatch

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