During the heated debate over health care reform
several years ago, some states jumped ahead of the rest in
aggressively regulating their health insurance markets to speed
reform. The data are now in, and they show that these attempts have
backfired by harming the very citizens they were designed to
help.
Between 1990 and 1994, 16 states were most
aggressive in passing laws attempting to increase access to health
insurance for their uninsured citizens. They imposed mandates and
regulations on health insurance for small employers and individual
citizens, implementing at the state level many of the provisions
contained in the failed Clinton health care bill.
To
assess the results of these state efforts, the Galen Institute, in
partnership with The Heritage Foundation, conducted a study of the
16 states. The data show that in 1996, after the legislation in all
16 states had been implemented, these states experienced an average
annual growth in their uninsured population eight times that of the
other 34 states.
In
1996, the one-year average growth rate in the uninsured population
in these 16 states was 8.14 percent; in the 34 other states, it
actually had fallen to 1.02 percent. In 1990, before the blizzard
of health care reform legislation, the two groups of states had
been nearly equal at 4.6 percent and 3.9 percent, respectively.
Although the primary intention of
insurance reforms is to make insurance coverage more affordable and
available, thereby increasing the number of people covered by
private health insurance, the 16 states that implemented these more
comprehensive reforms have had the exact opposite experience. The
result:
The
16 states that chose the regulatory route passed laws that
included, among other requirements, mandates that insurers sell
policies to anyone who applies and agrees to pay the premium--even
if they wait to buy insurance until they are already sick
(guaranteed issue); prohibitions on underwriting practices like
excluding coverage for some medical conditions (pre-existing
condition exclusions); and requirements that insurers charge the
same price to everyone in a community, regardless of the
differences in risk individual policyholders represent (community
rating).
The
16-state study included Idaho, Iowa, Kentucky, Louisiana, Maine,
Minnesota, New Hampshire, New Jersey, New Mexico, New York, North
Dakota, Ohio, Oregon, Utah, Vermont, and Washington State. These
states were identified by the U.S. General Accounting Office as
having enacted the most sweeping regulations affecting both their
small-employer and individual health insurance markets between 1990
and 1994.
The
health sector is the most heavily regulated sector of the American
economy. In every other industry, Americans recognize that
regulation drives up prices, restricts innovation, dries up
competition, and forces businesses to respond to regulators and not
consumers. That is exactly what is happening in the health
sector.
These data show that American citizens are
paying a high price for the mistakes of well-intended but flawed
legislation. It appears that the states actually ended up harming
their citizens by increasing the regulation of their insurance
markets, inadvertently squeezing more and more people out of the
system.
LESSONS FOR CONGRESS
Congress should learn from the experiences
of the states. Patients' rights legislation under now under
consideration in Congress will do nothing to help those who do not
have health insurance. In fact, it most likely will do them the
most harm.
The
regulations that Congress is contemplating inevitably will raise
the costs of health insurance. The Congressional Budget Office
estimates that every 1 percent increase in the cost of health
insurance throws 200,000 more Americans off the insurance rolls.
Those who can least afford the premium price increases will be
those who lose their health insurance.
A
Charlton Research Company poll conducted early this year found that
66 percent of the American people think that health care is
regulated enough and 60 percent say the biggest problem with the
system is high costs. The patients' rights bills that Republicans
and Democrats are concocting will make both problems worse.
HOW TO HELP THE UNINSURED
Lawmakers should focus on policies that
allow individuals to purchase health insurance that they own and
control themselves in a free, competitive, and well-informed
marketplace. In the process, they would begin to transform the
health sector into a market driven by competition, innovation,
value, and choice.
There are a number of actions that the
states should take. Among them:
-
Encourage changes in federal
tax laws. The central structural defect affecting the
market for private health insurance is the discriminatory tax
treatment of health insurance. States should encourage federal
legislators to provide broader access to health insurance through
tax credits and other fixed incentives for individuals. Immediate
changes include allowing 100 percent deductibility of health
insurance for the self-employed, relaxing restrictions on medical
savings accounts (MSAs), and providing targeted tax credits for the
uninsured.
-
Initiate the delivery of state
tax relief. To increase access to privately owned health
insurance for lower-income families, states should create targeted
tax credits, as North Carolina has done. One immediate opportunity
is the option for states to provide tax credits and vouchers for
uninsured children and their families through the Children's Health
Insurance Program.
-
Review all currently enacted
health care regulations to determine their specific impact
on the cost of health insurance and medical care, access to
insurance for individuals and families, and the quality of health
care provided.
-
Eliminate those
regulations found to be harmful.
-
Dismantle regulatory
boards established to monitor and enforce the currently
enacted reforms.
-
Abolish pure community
rating. This premium pricing structure drives up the price
of health insurance to prohibitive levels, forcing healthy
consumers out of the market and increasing the number of
uninsured.
-
Stop expanding benefit
mandates. Consumers are denied the choice of health plans
best suited to their needs when mandates force plans to provide an
array of benefits designed more to please lobbyists than to satisfy
consumers. Mandates also drive up health care costs, making
insurance more costly for individuals and families.
-
Promote experimentation of
coverage for the uninsurable. States should experiment
with properly structured pilot programs to expand access to health
care for uninsured, low-income, and other high-risk citizens.
-
Practice "Good
Medicine." Utilize demonstration projects at the state
level to focus on desired goals and to minimize unintended
consequences before implementing full-scale changes. Legislators,
like good physicians, should take care to "First, do no harm."
CONCLUSION
The
results examined in this study show that regulation at the state
and federal levels is counterproductive in responding to the
challenge of increasing access to health insurance in the
individual and private health insurance market.
A
far better approach is to empower individuals and families to make
health care choices that suit their own needs, restore the
independence and integrity of the medical profession, and force
insurance companies to compete for consumers' dollars. The health
care delivery system at all levels should be accountable directly
to the individuals and families being served.
--Melinda L. Schriver is a Senior
Research Associate with, and Grace-Marie Arnett is President of,
the Galen Institute, Inc., an Alexandria, Virginia, not-for-profit
institute specializing in health and tax policy research. The
authors are grateful to Robert E.
Moffit, Director of Domestic Policy Studies at The Heritage
Foundation, and Carrie J. Gavora, former Health Care Policy Analyst
at The Heritage Foundation.
For further information, please contact: The
Galen Institute, P.O. Box 19080, Alexandria, VA 22320, Phone: (703)
299-8900.