Study Doubts Benefits of Insurance Regulation

Study Doubts Benefits of Insurance Regulation
June 1, 2008

Although the number of state initiatives intended to improve access to affordable health care has been rising, it is not clear what effect the proposed programs will have on the health status of the newly insured population or the population in general, says a report from the American Enterprise Institute.

The study, An Examination of State Non-Group and Small-Group Health Insurance Regulations, by Anthony T. Lo Sasso, reviews the current upswing in state initiatives that purport to improve citizens' access to affordable health care.

Massachusetts implemented a program in 2006 to eliminate uninsurance in the state through a combination of policies. In early 2007, California Gov. Arnold Schwarzenegger (R) introduced a similar proposal. Illinois, Pennsylvania, and several other states are currently considering programs of their own.



Money, Not Health

While the proposals are making headlines for their goals of universal health insurance, Lo Sasso's study points out, "it seems to be largely forgotten in health policy circles and the general consciousness that insurance of all kinds is fundamentally about protection from financial disaster and that the causal link between health insurance and health is tenuous at best."

Market analysts are applauding Lo Sasso for the points he raises in the paper, which was released in January and began receiving public attention in March.

"He is absolutely correct," said Greg Scandlen, president of Consumers for Health Care Choices, a group based in Hagerstown, Maryland. "Every time the states have worked to 'reform' the system, they have ended up making conditions worse than they were before. We have seen that in New York, New Jersey, Maine, Kentucky, Oregon, New Hampshire, Washington, Tennessee, and several others."



'Smart States Repeal Errors'

Scandlen noted, "The smart states repeal their errors after a few years--as did Kentucky, Tennessee, New Hampshire, and Washington. The less-smart states keep their laws or, worse, compound them by adding even more regulations."

Lo Sasso's study suggests predictable distortions can result from regulations aimed at improving perceived deficiencies in the individual and small-group health insurance markets.

"A common-sense look at the premiums for non-group health insurance policies in regulated and unregulated markets suggests that regulated markets offer only limited options for the healthy and still quite expensive options for the unhealthy," Lo Sasso wrote.

Devon Herrick, a senior fellow at the National Center for Policy Analysis in Dallas, said Lo Sasso makes an important point by noting ill-conceived regulations often have unintended consequences.

Herrick said, "The most common of these is 'community-rated' premiums that unwisely force young, healthy people to subsidize the cost of premiums for older, less-healthy individuals. Another regulation, referred to as 'guaranteed-issue,' essentially allows people to forgo coverage until they become sick" and requires insurers to cover individuals 100 percent certain to cause them financial losses.



Old, Ineffective Ideas

"In addition," Herrick noted, "regulations often set minimum coverage limits that force all individuals to carry more coverage than they can afford or their assets warrant. When combined, this all creates an environment where health coverage is unaffordable and a bad value for all but the sickest individuals."

The report shows hurried attempts on the part of state legislators to "do something about health care" can result in old, ineffective ideas such as community-rating and guaranteed-issue regulations being imposed on a state's health insurance providers, says Diana Ernst, a health care policy fellow at the Pacific Research Institute in San Francisco.

Fortunately, says Ernst, several states are turning toward consumer-directed health care.

"Florida Governor [Charlie] Crist has talked about allowing businesses to leverage their buying power together to provide cheaper insurance for their employees," Ernst said. "The state of Missouri is the first state to allow small business owners to make pretax contributions to health plans that their employees select individually.

"Utah Representative Dave Clark has proposed giving income tax cuts to self-employed individuals so they can spend pre-tax dollars on health care just as individuals employed by companies can do," Ernst continued.

"Finally," Ernst noted, "Mississippi Governor [Haley] Barbour has proposed a Health Insurance Exchange to offer a single market where consumers can choose from a variety of health plans that meet their specific health needs, and can reduce the burden on small businesses of providing employee health insurance."


Sanjit Bagchi, M.D. (drsanjitbagchi@gmail.com) writes from India.


For more information ...

American Enterprise Institute, An Examination of State Non-Group and Small-Group Health Insurance Regulations, January 2008: http://www.aei.org/publications/pubID.27348,filter.all/pub_detail.asp