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:
- More citizens uninsured.
- Fewer citizens covered by private insurance.
- Fewer citizens covered by individual insurance.
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.”
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.
This paper is adapted from a major study by the Galen Institute soon to be published by The Heritage Foundation.
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, Health Care Policy Analyst at The Heritage Foundation.