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Executive Summary #1307es on Health Care

July 20, 1999

Executive Summary: Rising Costs, Reduced Access: How Regulation Harms Health Consumers and the Uninsured

By

Members of Congress once again are embroiled in a debate over managed care reform legislation that attempts to address some of the symptoms plaguing America's health care system. Instead of changing federal policies that restrict competition and patient choice, the Patients' Bill of Rights Act of 1999 would burden the health care system with more federal regulation. A growing body of evidence indicates that adding new layers of regulation would increase the cost of health insurance for many Americans and add to the number of people who are uninsured. Specifically:

  • The managed care reform proposals would increase health insurance costs for America's workers and their families.
    According to recent Congressional Budget Office (CBO) estimates, if the Patients' Bill of Rights Act of 1999 provisions were fully phased in, insurance premiums would rise by an average of 4.8 percent. The private-sector mandates in Title I of the bill would cost about $3 billion in 2000 and $13 billion in 2004.

  • In driving up the cost of coverage, the proposed legislative reforms would throw more people off the insurance rolls.
    The CBO, as well as several private economists, estimates that each 1.0 percentage point increase in the cost of health insurance drives between 200,000 and 300,000 additional Americans off the insurance rolls.

Each new mandate and regulation passed by federal and state regulators may increase costs by a percentage point or two; some by much more. And even though they can be justified individually, the cumulative effect of the added regulations is that more and more people will be forced to forego health coverage.

In a properly functioning health care market, in which consumers could choose and own their health insurance policies, companies would be forced to shape insurance products to meet
customers' needs for services, quality, and price. Companies that did not do so quickly would lose customers and revenue. Sellers of health insurance policies would be bound by the contract agreement they had made, which would be enforceable through the existing legal system.

The direct link between imposing regulations and mandates on the health insurance market and the number of uninsured is well-established in the research. For example:

  • Duke University researchers found that the higher the number of coverage requirements placed on plans, the higher the probability that an individual will become uninsured and the lower the probability that a person will have any private health insurance coverage, including group coverage.

  • Professors at Wayne State University and the University of Alabama-Birmingham determined that as many as one in four Americans lacks health insurance because of benefit mandates. Each additional mandate significantly lowers the probability that a firm or an individual will have health insurance.

  • A researcher at Georgia State University found that state guaranteed issue requirements, coupled with either community rating or rate bands in the small-group insurance market, increase the probability that a person will become uninsured by nearly 29 percent.

As costs and the number of uninsured continue to rise, a different approach clearly is needed. By injecting patient choice and competition into the health care sector, many of the problems the political community is attempting to solve through legislation and regulation would be addressed by consumers within a competitive marketplace.

Specifically, Congress should consider:

  1. Targeted tax credits for the uninsured. Legislators on both sides of the political aisle are introducing a number of innovative tax credit bills.
    Other bills would allow individual tax deductions for the purchase of health insurance. Tax deductions can ease the burdens of self-employed individuals, but they do not roll back the regressive nature of the current system, which provides more tax relief for those with higher incomes and a higher tax break for the purchase of more expensive health insurance policies. Tax credits would be more equitable, and they could be made refundable and targeted to those who are most likely to be uninsured. Tax credits would empower consumers to shape the health insurance market through competition instead of regulation.

  2. Alternative purchasing mechanisms.
    Providing alternative grouping mechanisms for individuals in purchasing health insurance would give them the benefits of group purchasing. A number of mechanisms are being debated, like voluntary choice cooperatives, HealthMarts, and association health plans.

  3. A moratorium on regulation and mandates.
    Congress and state legislators should place a moratorium on passing more insurance regulations and health benefits mandates until their costs and impact can be explored in full.  People are denied health coverage suited to their needs when government forces plans to provide an array of benefits designed by politicians, not consumers. Regulations and mandates drive up health care costs, making insurance more costly for individuals and families who have no choice but to purchase the policies prescribed by politicians.

If increasing access and lowering costs are genuine goals of Congress, a better approach would be to empower individuals and families to make their own health care choices, restore the doctor-patient relationship and the independence and integrity of the medical profession, and force the health care industry and insurance companies to compete for consumer dollars. The health care delivery system, at all levels, should be directly accountable to those it serves.

Grace-Marie Arnett is President of the Galen Institute, Inc., a not-for-profit organization located in Alexandria, Virginia, that specializes in health and tax policy research.

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