Posted by
Brian Koenig on Monday, February 01, 2010 2:01:18 PM
Health care regulation is the worst form of tax, as it confiscates wealth and prevents effective drugs and treatments—that save lives and provide physical relief for terminal patients—from entering the market. Christopher Conover of Duke University noted the social costs of regulation across 47 health care categories. In defining social costs as “the value of the goods and services lost by society resulting from the use of resources to comply with and implement the regulation, and from reductions in output”, Conover estimated that in 2002, health care regulation cost taxpayers $169 billion. “Spread across all households, health services regulation cost the average household an estimated $1,546 in 2002.” This is more than Americans spent on both gasoline ($165.8 billion) and pharmaceuticals ($162.4 billion).
Insurance providers are heavily regulated, as government places restrictions on pricing, cancellation terms, and administrative practices. Pricing regulation expels actuarial science in underwriting by preventing insurance companies from assessing premiums based on risk. This may appear equitable, but because it forces low-risk customers to subsidize high-risk customers, there exists a severe ethical dilemma.
To regulate pricing in this way means that someone who postpones buying health insurance for 20 years, and is suddenly diagnosed with heart disease, pays the same premiums as someone who has carried insurance their whole life and has no severe health problems. Since providers must offset their premiums in order to compensate for price controls, low-income and low-risk individuals are denied insurance, because premiums have become unaffordable. It’s not compassion, but common sense that shows why this is unfair. In the quest for social justice, in theory, regulators produce a result that is unjust and unmerited.
Government also intervenes in what benefits insurance policies must cover. Part of the problem lies with crooked constituencies that arouse biased legislation. Lobbyists and advocacy groups invoke mandates by using constituencies that provide lush political contributions to politicians. The Council for Affordable Health Insurance found that state governments have legislated 2,133 benefit mandates that require insurers to cover services such as “acupuncture, massage therapists and hair prostheses (wigs).” Not surprisingly, supporters of such mandates, who lobby for heavy regulation, include acupuncturists, massage therapists, and chiropractors.
In the 1960s there were only a handful of benefits that government mandated, and now there are a couple thousand. It is no wonder health care costs have skyrocketed over the past couple decades. Mandated benefits may make insurance policies more comprehensive, but they also make them more expensive—at an expense that is not always beneficial. They force insurers to cover benefits that are usually paid out-of-pocket, oftentimes benefits that are not necessary in maintaining health quality.
William Congdon, Amanda Kowalski, and Mark Showalter published a paper, “State Health Insurance Regulation and the Price of High-Deductible Policies”, that analyzed premium data from Golden Rule insurance and eHealthInsurance.com (one health insurance provider and one internet brokerage). The study focused on four categories of state regulation:
(1) mandated health benefits, which require insurers to cover particular treatments or particular services; (2) “any willing provider” laws, which restrict insurers’ ability to exclude hospitals and doctors from their networks; (3) community rating laws, which require insurers to limit premium differences across individuals; and (4) guaranteed issue laws, which require insurers to sell insurance to all potential customers regardless of health or pre-existing conditions.
The analysis was consistent across both datasets: eliminating state regulation would lower annual premiums by $2,000 per individual. This study, along with subsequent studies, shows that on the national level states with heavy regulation have higher insurance premiums than states with looser regulatory standards. Accounting for 12 cents on every premium dollar, mandated benefits hike premium rates. The average state mandates 26 benefits that insurance providers must cover—mandates such as hair prosthesis, athletic training, birthmark removal, and pastoral counseling. Statistically, individuals in states that mandate more than 26 benefits pay higher premiums than individuals in states with fewer than 26 mandated benefits.