In 1949, Pennsylvania became the first state to impose benefit mandates on health insurance, requiring plans to pay for osteopathy and dentistry services. It was a watershed event that led to a flood of legal requirements in other states.
Unfortunately, it also laid the groundwork for today’s bloated health care market, where consumers often cannot afford health insurance because government has unwittingly priced it beyond their reach.
Pennsylvania has 38 health benefit mandates, including coverage for drug and alcohol abuse treatment. The state is poised to add another, requiring coverage for autism. All residents, even if they are not at risk for such diseases or disorders, are burdened with higher insurance premiums for these gold-plated policies. The autism mandate alone could increase premiums 6 percent.
By 2007, states had passed 1,594 laws mandating an assortment of health care benefits. They range from heart transplants in Georgia, to hairpieces in Minnesota, to hearing aids and hormone replacement therapy in New York and Nevada.
To some, this indicates that lawmakers have been acting fairly and compassionately. Couples who cannot have children and yet are forced to subsidize maternity care for others might disagree.
Mandates don’t just force the costs from unnecessary treatments onto those who can’t or won’t use them. They also tend to cast people into the ranks of the uninsured.
Economists John C. Goodman and Gerald L. Musgrave demonstrated mandates’ effects on insurance rolls 20 years ago, when there were far fewer mandates than there are today. They determined that state benefit mandates priced between 14 percent and 25 percent of those without health insurance out of the market.
In other words, excessive government regulations could be considered responsible for keeping health insurance out of the reach of up to a quarter of the uninsured population.
More recently, the California Association of Health Plans concluded that a set of mandates under consideration by state lawmakers earlier this year would force premium hikes that would prompt 85,000 Californians to lose their health insurance.
Small businesses and their employees, which constitute half the work force, bear the brunt of this intrusion. Up to 12 percent of small companies that do not currently offer health insurance would do so if there were less expensive mandate-free options.
Mandated benefits can also result in income losses for workers. When businesses are forced to pay more for mandate-laden health plans, they have fewer funds left over for employee salaries.
Workers may bear those additional costs by putting in longer hours or taking a pay cut. For example, professors Robert Kaestner and Kosali Simon found in 2002 that workers’ hours increased 1.6 percent in states with 10 or more mandates in order to pay for those mandates. That adds up to almost an extra day of work each year — just to cover the cost of mandated benefits.
In other cases, overly expensive health insurance can prevent a firm from hiring new employees or even cause workers to lose their jobs.
Not many workers would be excited about getting their pay docked or losing their job in exchange for a more comprehensive insurance policy — particularly when many mandated benefits have little or even no real value.
For example, autonomous bone marrow transplant for breast cancer was mandated in many states — until the National Cancer Institute determined it to be harmful in 1999.
Lawmakers may see benefit mandates as an easy way to guarantee a minimum level of insurance coverage to their constituents. But their good intentions come with a raft of unintended consequences —like higher premiums, income losses, and increases in the number of uninsured.
Attempts to cover the uninsured will be futile if every insurance policy is gold-plated with mandates. Lawmakers should take notice.