Health Insurance Mandates Increase Costs, Uninsured

Commentary by John C Goodman

Mandated health insurance benefits are laws requiring insurers to cover specific providers and procedures not usually included in basic health care plans. In 1965 there were only seven state-mandated benefits nationwide. Today there are close to 1,500.

Depending on the state, mandates can cover services ranging from acupuncture to in vitro fertilization, and providers ranging from chiropractors to naturopathy. They cover bone marrow transplants and clinical trials in Georgia, hairpieces in Minnesota, marriage counseling in Connecticut, and pastoral counseling in Maine.

These laws mean that if people buy insurance at all, they must purchase a bloated and expensive package of benefits designed by politicians. They are forbidden from buying insurance that fits their own preferences, and is tailored to individual and family needs.

These mandates apply only to those health insurance policies controlled by state health insurance laws - mainly policies purchased by small businesses and individuals. They do not apply to the self-insured plans of large companies. Nor do they apply to Medicare or Medicaid patients. And state governments almost always exempt their own employees. As a result, the full impact of these laws falls on the most vulnerable part of the market.

Mandated benefits raise the cost of insurance and make it considerably more expensive than barebones insurance. As a result, mandates price otherwise healthy people out of the market. In fact, studies estimate that as many as one out of every four uninsured Americans has been priced out of the market for health insurance by mandates.

For example, requiring insurers to treat mental illnesses like physical illnesses, which Georgia began mandating in 1998, could add up to $700 to the cost of a policy. Mandated coverage for substance abuse, which Georgia has required since 1975, increases premiums by 6 to 8 percent.

If mandates do so much harm, then why do they exist? Very few mandates have been enacted because of pressure from patients. Almost all of them are the result of lobbying power of special interest providers, including many doctor groups. Chiropractors, psychologists physical therapists - these and many other groups descend like locusts on state legislatures each year, seeking more laws to require coverage of their services.

The reason there hasn't been more outrage over these increased costs until just recently, is that many employees believe their employers pay for the insurance they provide and therefore bear the costs alone. While this is true in a general sense, it ignores the fact that employee benefits are a substitute for wages in the employee's total compensation package. As the cost of providing benefits increases, employees either face lower wages or a reduction in benefits.

While mandated benefits mean that people with health insurance have more health care options, they also mean that fewer people are insured. Employers, especially small businesses, who face ballooning health care costs often have no choice but to drop coverage all together.

Fortunately, however, things are beginning to change. As most states face skyrocketing health insurance costs and an ever-growing uninsured population, some legislatures are rightly rethinking the wisdom of piling on burdens that only make these problems worse.