"Snake Oil" Cures
in Health Care Policy Blunderland
Conrad F. Meier
In an effort to solve health care problems, we seem to accept the judgment of politicians as a substitute for the judgment of buyers and sellers in a free marketplace when determining what health insurance coverage we need for ourselves.
I, for one, would not select to pay insurance for a toupee, in vitro fertilization, sperm bank deposits, or mental health care on a parity with any physical illness. Yet, I pay for them anyway because politicians have made judgments for me by passing health care mandates.
The political "snake oil" mandate cure for our health care system does nothing to help and does everything to raise the cost of health care insurance beyond the reach of an ever growing number of citizens. Even though mandates attempt to address some real issues, they are bad social policy. The federal government should not be in the business of determining what benefits, what treatments, what doctor or what hospital must be provided to patients.
Whether to cover treatment for a bald head, low sperm count or mental illness should be an individual issue, not one for state or federal legislative intervention. Most actuaries, insurers, and health policy advisors agree that virtually all mandates increase the cost of health insurance, but, up until, now the magnitude of their effects has been subject to debate supported by anecdotal and empirical evidence.
An under-reported study prepared by the actuarial firm Milliman & Robertson estimates the costs of 12 of the most common mandates and finds that, collectively, they can increase the cost of insurance by as much as 30 percent or in dollar terms, $525 to $1,050 a year for a family health insurance plan.
As shown in Table 1, while several of the mandates studied would increase the premium less than $35 each, mandates like infertility treatment could increase the cost between $105 and $175 a year and mental health parity with any physical illnesses could add between $175 and $350 to the cost of a policy.
Taken together, the package of 12 mandates potentially increases the cost of health insurance. Based on these estimates, Milliman-Robertson conclude a small business employing 25 people --- with a standard mix of 40 percent single and 60 percent family coverage --- could see its premiums rise by $20,000 a year.
As important as this study is, there are hidden costs associated with a health care mandate that were not included:
1. Administratively, federal guidelines are difficult to understand. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) contains guaranteed issue --- i.e., the "mother of all mandates" --- along with 500 new rules, regulations and procedures.(1)
2. Requirements for new and excessive record-keeping.
3. Insufficient state discretion in achieving national goals established by federal bureaucrats.
4. State agencies complain legislative objectives are often vague and,
more often than not, in conflict with existing state laws.
Stop Selling the "Snake Oil"
In 1965, there were less than 10 state-mandated health care benefits, today there are over 1,000. Mostly, these mandates apply only to health insurance policies regulated by state health insurance laws --- e.g., the usual policies purchased by small businesses and individuals.
Many employees mistakenly believe their employers pay for the insurance they provide when, in reality, employee benefits are a substitute for wages in the employees' total compensation package. Higher benefits often force employees to accept lower wages, whether they like it or not.
While mandated benefits mean that people with health insurance have more health care options, they also mean that more people will have no options at all since they can't afford the insurance, either individually or as a group member because their employer can't afford the increased cost.
When employers who canceled their employees' health insurance policies have been polled on why they did so, the majority claimed that it was because the price was too high.(2)
The mental-health parity mandate will impose huge new costs. The Congressional Budget Office (CBO) estimated that premiums for traditional fee-for-service plans would increase by 5.3 percent, while managed care plans would cost the consumer an additional 4 percent. Further, the CBO says that a 1 percent rise in premium forces 200,000 people to drop private health insurance.
Understanding that it is workers and their families who ultimately bear the costs of mandated benefits, the CBO predicted this provision will force employers either, 1. to cut back other benefits; 2. to cut out health insurance altogether; or 3. to pass the higher cost of insurance on to workers in the form of lower wages or increased premiums.
Rather than adopting bad health care policy, legislators should allow consumers to choose not only their health insurance coverage, but also the kinds of medical treatments and procedures they want at the prices they are willing to pay.
In a consumer choice system, individuals and families - not employers, not managed care companies and certainly not the government --- would choose the health plans and benefits best suited for individual needs. With choices being made by employers and healthcare being over-regulated by government we have what Dr. Miguel Faria has accurately described as "corporate socialism."(3)
Even though a mandate is packaged with warm and fuzzy phrases like "incremental reforms" or "patient bill of rights," they have historically failed to reform the health care system. As health care "snake oil" mandates have failed to produce the advertised cure, health insurance has become more expensive, employers and individuals cancel more policies while politicians end up with a growing uninsured "crisis" --- a crisis of their own making at the expense of their constituents.
If bleeding patients of an ounce of blood, as once was common medical practice, just made them weaker, it was stupid to believe that bleeding patients of a pint would make them better. Yet, this is what the advocates of government regulation of health care have been doing for years - prescribing more of the same harmful regulatory treatment, slowing bleeding the private health insurance market of its vitality, eventually killing it in the name of curing it.
The full spectrum of medical care --- from financing payment to delivery of care --- has become the most politicized and the most over-regulated business sector in our economy. In consumer markets, other than health care, we recognize how government regulations create price inflation, thwart innovations and eliminate competition.
We also recognize how these anti free-market trends force businesses
to respond to regulatory demands instead of consumer demands. Yet, when
it comes to health care, too many legislators of Democratic and Republican
philosophies just don't get the message and repeatedly vote to ensure themselves
instead of seeking to insure more citizens.
More Negative Consequences of the
Snake Oil Mentality
There is more under-reported and compelling evidence that political "snake oil" cures are a dismal failure even among a class of citizens previously not numbered in the uninsured statistic.
The number of uninsured citizens has climbed, on average, by one million per year this decade to a total over 43.5 million. Among those making $75,000 annually the uninsured rate jumped from 7.6 percent to 8.1 percent in 1997.(4)
On July 23, 1998, The Galen Institute, in partnership with the Heritage Foundation, released the results of a major study assessing the consequences of aggressive health insurance regulation:
Between 1990 and 1994, the following 16 states were identified by the Government Accounting Office as being the most liberal in passing laws that forced insurance companies to insure the uninsured population: 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 imposed sweeping regulations on health insurance for the small-group market and the individual market that resembled most elements of the Clinton national health care plan. Included in the list of mandates are guaranteed issue, collective renewability, community rating, government imposed premium restrictions, conversion to non-group insurance, coverage and treatment mandates, government-defined health benefits and mandatory managed care.
The data from the 16-state study, as depicted in Table 2, show that in 1996, after all the legislation had been implemented, these 16 states experienced an average annual growth rate in their uninsured population eight times that of the 34-less regulated states. The uninsured rate was much greater than the other 34 states despite the fact legislators and activists claimed the reforms would improve coverage and decrease the number of people without health insurance.
Other measurements in the study indicate:
* 1 percent of the citizens in the 16 over-regulated states lost employer-based insurance, while more than 1 percent of the residents of the 34 states gained employer-based insurance.
* More than 10 percent of residents in the 16 over-regulated states were
covered by individual policies in 1990; by 1996, the figure dropped to under
Health Care and Politics Equals
Bad Social Policy
Every mandate imposed by state or federal government creates a "two-fer" reaction requiring citizens to pay twice for the same regulation. First, consumers pay the cost of complying with a mandate. Secondly, consumers pay the increased taxes needed to support the bureaucracy required to enforce the mandate. Looking at it from another perspective, if the automobile industry was as overly regulated as the health care market, millions of consumers would be riding bicycles to work --- out of necessity, not choice.
What we are witnessing today are the consequences of years of previous
government intrusion: a tasteless stew of bad social policy that continually
results in the negative consequences of inflated cost, inflated uninsured
numbers and inflated bureaucracy. And this time around, instead of fee-for-service,
managed care has become the scapegoat for failed social policy.
The Worst of Times In the Midst
The data presented here presents historical evidence. It does not and could not consider how the same elements now creating serious problems in the 16 over-regulated states also are contained in the 1996 Health Insurance Portability and Accountability Act, (HIPAA). The impact of HIPAA is just now starting to ripple though the entire health care system, state-by-state, already identifiable as the cause of increased premiums, increased uninsured rates and reduced competition.
If the current crop of legislators allows the continual "bleeding" of the health care system, we can expect a significant increase in the number of uninsured, a further decrease in the rate of private insurance coverage, an increase in the reliance of healthcare welfare, and the continued loss of health care freedoms.
What policy makers can learn from this new data should put an end to the snake oil mentality. If it does not, we can expect the federal government to then solve the problem of its own making by "rescuing" us with a single-payer, national health care plan.
We have arrived at a significant juncture in the history of health care reform, suggests Joseph Bast, President of The Heartland Institute: "Finding our way back to health care freedom will require more than simply retracing our steps, repealing each generation of counterproductive policies as we come across them, because these policies are often justified by the faulty policies that preceded them. What is required, I believe, is to campaign to change the public policies in the order in which they were first adopted."(5)
Those with a grasp for the obvious will argue that these are the greatest of economic times and historically low levels of inflation. Yes, everywhere except in the health care sector. Inflation has been described as the fiscal attendant of socialism or the welfare state. So, if you want to prevent health care socialism there is only one thing you can do: return government to its original principles.
Leonard E. Reed, founder of The Foundation for Economic Education, likened our robust economy to a sponge. "A sponge will sop up an awful lot of mess; but when the sponge is saturated, the sponge itself is a mess, and the only way you can make it useful again is to wring the mess out of it."(6)
I make no attempt here to tell you what to think, but rather to give you something to think about: There is credible evidence showing how state residents have become the guinea pigs for a failed social experiment based on the flawed theory that government can effectively micro-manage the economic complexities of the health care industry.
From a historical perspective, this approach has failed whenever and wherever it has been tried. What comes next must be an ambitious effort to repeal harmful legislation as we return to health care privatization with minimal government intrusion. Anything less takes us closer to total medical socialism and the nationalization of health insurance companies.
Without a wringing out of healthcare's "economic sponge," the
private health care system will implode under the weight of excessive patient
protection regulations and mandated benefit laws.
1. Meier CF. How to Implement Kassebaum-Kennedy: A State Legislators
Guide to the Health Insurance Portability and Accountability Act of 1996,
The Heartland Institute, March 1997.
2. Blue Cross/Blue Shield Survey of Plans, 1995.
3. Faria MA Jr. Medical Warrior: Fighting Corporate Socialized Medicine, Macon, Ga, Hacienda Publishing, Inc., 1997.
4. Litvan L. Welfare reform: bad for health? After getting jobs, some lose health coverage. Investors Business Daily, Oct. 21, 1998.
5. Bast JL. How we lost our health care freedom...and how to get it back, The Heartlander, Heartland Institute, April 1998, pp.1-2.
6. Reed LE. The essence of Americanism, The Freeman, September 1998, p. 529.
Mr. Meier is health policy advisor for the Chicago-based Heartland Institute. He writes a bimonthly opinion column for Broker News Publishing, Group, Inc. and is Assistant in Research, Center for Advance Social Research, University of Missouri. E-mail: email@example.com.
This article was published in the Medical Sentinel, Volume
4, Number 3, May/June 1999, pp. 103-105.