The Public Policy

A Democrat Congress Means Rising Health Costs

Don't say you weren't warned.

By and 7.18.07

Send to Kindle

Don't say you weren't warned. It was predicted that the Democrat-controlled Congress would pass legislation making health care and health insurance more costly. Behind Democratic rhetoric there has always been history -- which was a good indicator that "the probable effect of any legislation they pass will be to make health care and health insurance more expensive."

Those who ignore history are doomed to repeat it, and for this Congress ignorance is bliss. Along with some Republican accomplices, Democrats have no shortage of health-care legislation that will do the opposite of its intended effect of making health care more affordable. The three bills that have garnered the most attention during this Congress are the Mental Health Parity Act, a bill to give Medicare the power to negotiate prescription drugs, and reauthorization of the State Children's Health Insurance Program (SCHIP).

Mental Health Parity Act
The Mental Health Parity Act (S. 558) is being pushed by Senator Pete Domenici (R-NM) in conjunction with Senators Mike Enzi (R-WY) and Ted Kennedy (D-MA). It would require that health insurance policies that provide coverage for mental illness to provide it in the same way that they provide benefits for other conditions. Thus, if the co-pay to see a family doctor is $20, then the co-pay to see a psychiatrist must also be $20.

Proponents of the mandate claim that it adds little to no extra cost to health insurance. They point to a study showing that there was no cost increase in mental health benefits when mental health parity was enacted in the Federal Employee Health Benefits (FEHB) program.

The reason costs didn't increase is that the use of mental health benefits didn't increase either. Most of the plans in the FEHB used managed care organizations to manage the mental health benefits, suggesting that use didn't increase because the insurance programs restricted access to benefits.

Other research, which examines programs that didn't restrict access, suggests that mental health parity is one of the most costly of benefit mandates. Using actuarial data, the Council for Affordable Health Insurance, an insurance industry group, estimates that it can add between five and ten percent to the cost of a health insurance policy.

Few of the likely consequences of imposing a mental health parity mandate are good for employees. Forcing insurance programs to cover mental health the same way they cover physical illnesses and conditions will result in more expensive health insurance. That means more businesses will increase their insurance premiums or drop their insurance altogether, resulting in an increase in the number of uninsured. Businesses might simply drop their mental illness coverage from their insurance policies altogether, meaning that employees will have less access to mental health benefits.

Medicare and Prescription Drugs
When Nancy Pelosi became Speaker, she promised to give Medicare the authority to negotiate with drug companies for lower drug prices within the "first 100 hours" of this Congress. Although that effort has stalled, it will no doubt hang around the halls of Congress as long as the Democrats rule the roost. Of course, it is "negotiation" only in a very loose sense. Other government agencies that negotiate drug prices require drug companies to sell them drugs at no higher than the average private-sector price of those drugs. If Medicare ever gets that power, it may lower prices for Medicare patients, but it will increase the price of drugs for those with private insurance.

Drug prices will rise in the private sector because drug companies will want to maximize the price they receive from Medicare. The price Medicare will pay will be based on the average price in the private sector. So, the higher prices are in the private sector, the greater the average price will be. The higher the average price, the greater the reimbursement the pharmaceutical company will receive from Medicare.

This phenomenon has already played itself out in Medicaid, the government health insurance program for the poor. Medicaid bases the price it pays for drugs on the average private-sector price. According to Professors Mark Duggan and Fiona M. Scott Morton, "When Medicaid is a large part of the demand for a drug, this creates an incentive for its maker to increase prices for other health care consumers." Duggan and Morton's "estimates imply that a 10-percentage point increase in the [Medicaid market-share of a prescription drug] is associated with a 7 to 10 percent increase in the average price of a prescription."

Of course, should this happen, the Democrats and their allies will cynically blame rising drug prices on "greedy" pharmaceutical companies gouging patients. Could letting Medicare negotiate drug prices work out better for them?

Tomorrow: SCHIP reauthorization -- socialized medicine on the installment plan.

Like this Article

Print this Article

Print Article
About the Author

David Hogberg is a senior fellow at the National Center for Public Policy Research.  Follow David Hogberg on Twitter.

About the Author

Paul Gessing is president of the Rio Grande Foundation in New Mexico.