Sensible Health-Care Reform (Part 5): Health-Care Costs Drivers, III

This is the fifth of a series of commentaries, written from a free market, individual-centered perspective, examining the serious deficiencies of our current health-care system, the underlying root causes of those problems, the looming government fiscal catastrophe secondary to health-care entitlement spending, the failure of the recently passed health-care “reform” to address the grave problems facing our nation related to health-care delivery, the harm the recently passed health-care “reform” will cause to our seriously ill economy; and a proposal for a framework to truly, effectively, and sustainably reform our health-care delivery system. This report discussed misconceived insurance regulation as an underlying cost drivers of our health-care system.

The author feels obligated to disclose underlying bias: 1. this analysis reflects the author’s strong belief in the efficiencies and fairness of truly free markets as well in the individual’s right and responsibility of self-determination and of self-reliance. 2. I have 3 daughters, 3 nieces, and 9 nephews who deserve their opportunity to live the American Dream – a dream made possible by the protection of our unalienable rights endowed by our Creator

Health-Care Costs Drivers – Government Regulation Restricting Insurance Industry Competition

While the 3rd party payer system creates detrimental incentives that primarily drive the unsustainable cost growth in both the government as well as the commercial health-care insurance systems, there are additional governmental policies and regulations that disrupt beneficial free market competitive forces and unnecessarily add to the cost of private health-care insurance. State legislated coverage mandates significantly add to the cost of health-care insurance. The mandates are of 2 general forms. The first type requires insurers to provide coverage for particular services that may include, for example, drug/alcohol rehabilitation, smoking cessation, infertility, autism care, hair restoration, etc.; may further require coverage for provider services such as chiropractic, massage, acupuncture, etc.; and finally may also require coverage extension to include grandchildren, dependent family members, domestic partners, etc. The Council for Affordable Health-Care recently compiled a state by state accounting of the number of mandates and estimated the cost effect on premium prices. The number of these types of mandates differed from state to state from as few as 20 to as many as 60. The estimated increased premium cost of insurance because of these mandates ranged from 20 to 50% among the 50 states.

While not intrinsically inappropriate, these mandates increase the cost of health insurance. Many individuals or families who presently can not afford health-care insurance could afford simpler and more limited coverage insurance. They could choose policies that do not include coverage for services they personally would likely never need e.g. drug or alcohol rehabilitation or perhaps infertility services, etc., while still getting essential medical care coverage. Worse yet, not infrequently, mandates for less standard services e.g. acupuncture, hair restoration, etc., more likely resulted from that service’s special interest group making a campaign contribution to a state legislator rather than a convincing argument made to that legislator that such mandated service benefits the insured and is worth the additional premium cost.

“Guaranteed issue” and/or “community rating” requirements comprise the 2nd form of mandates. Guaranteed issue requires insurers to issue policies regardless of a person’s health status while community rating requires insurers to blend the utilization of services risk of a particular (higher risk) person with the risks of a broad group of persons. Insurance companies set premiums by actuarial calculations; that is they make estimates, based on huge data bases of statistics, of likely expenditure costs for a specific pool of insured persons. “Guaranteed issue” mandates, which require inclusion of persons with pre-existing conditions, increase the expected medical care benefit costs for a particular insurance pool, and therefore the overall premium cost of insurance for that group. “Community rating” mandates prevent an insurance company from setting premium cost for an individual in a given insurance pool to reflect the risk that particular individual contributes to the overall pool of risk. Instead, the increased anticipated care costs are spread across the entire pool of the insured. As a result, a healthy young person would be unable to get a health-care insurance policy premium that accurately reflects their much lower likelihood of utilizing services than that of an older or less healthy person. A WellPoint Study found that “guaranteed issue” and “community rating” mandates in the now passed health-care reform bill will increase the premium cost for a healthy 25 year-old by more than 150%. In the end, as a result of increased premium cost, many younger healthier people will opt out of buying health-care insurance, leaving less healthy persons in the insured pool, further driving up the cost of insurance for those persons left in that insured pool. And those young healthy persons, who elect not to buy insurance because of the increased costs, now get counted in the ranks of the uninsured.

Mandates not only increase the cost of insurance but, along with other insurance regulations, distort market forces and lead to decreased competition among insurance providers. Current insurance regulations further require individuals and businesses to purchase health-care insurance within state boundaries. Mandates and regulations vary from state to state, variably complicating the business environment for insurance companies. In any given state, there are only a few providers large enough to comply with the varied regulatory environment and still operate profitably. With fewer providers competing to sell policies, premium prices are higher and customer service is inferior. Further, current insurance regulations do not allow groups of individuals or individuals to band together to form so-called “association health plans” that would increase their purchasing power and lower their premium costs.

The next Dr Right installment will examine Federal tax policy on health-care premiums an additional significant health-care cost driver.

Call to Action: Though passed by an appalling political process and with complete disregard of our Constitution, though containing ineffective and even harmful policy, though disregarding the inalienable rights given to us by our Creator, the passed health-care reform bill is not the end of the debate but rather a new beginning. It is an opportunity to contrast irresponsible policy with prudent policy, to contrast misconceived policy with thoughtful policy, and to contrast policy that places government in the center with policy that places the individual in the center. Get in the fight and stay in the fight. We have learned, the hard way, the consequences of leaving it up to the career politicians. Contact your legislators and demand they exercise the privilege the voters gave them to represent us to effectively address health-care delivery and the other problems facing our states and nation. Learn about the issues and talk to others about the issues. We must join and financially support conservative think tanks that promote traditional American economic principles, personal freedoms, and values; and that shine the light of accountability on irresponsible or faulty government action and policy. Those organizations include The Heritage Foundation, The State Policy Network, The Commonwealth Foundation and your state’s conservative think tank (see SPN for your state’s organization). We must join and support our local grass roots organizations like the York 9-12 Patriots, York County Action, York Campaign for Liberty, and others, so we can take back the political process that has become corrupt and ineffective. We must work to bring up, from the grass root level, candidates – principled persons (Republicans, Democrats, and Independents) who will actually solve problems, who will respect the Constitution of the United States, and who will honor the “consent of the governed” entrusted to them by the citizens of our counties, states, and country.

God Bless and God Bless America