The Manhattan Institute has released an instructive
new study by Stephen T. Parente and Tarren Bragdon showing
the damaging effects of government meddling in the health
insurance market. Though the report focuses on New York, it's
worth a look because many of the same policies that have helped
destroy the market for insurance in the Empire State are now
being proposed by Congress and President Obama at the national
level.
Among the onerous regulations New York places on insurers are
"guaranteed issue" and "community rating," which in plain English
mean that they force insurers to cover individuals with
preexisting conditions, and to charge everybody the same
premiums, regardless of health status. The state also has 51
mandates requiring insurers to cover all sorts of treatments,
including hormone replacement therapy. It also outlaws cheaper,
more basic health insurance plans, which could be paired with
health savings accounts.
The results of these laws have been catastrophic, driving up the
cost of an average insurance policy in New York to more than
double what it is in neighboring Connecticut. As a result, the
number of those who purchase insurance on their own has tumbled a
staggering 96 percent since 1994.
Instead of seeing failed experiments in New York and other states
as a clear example of why government interference makes things
far worse, Democrats have decided to impose most of these same
policies on the nation as a whole, while attempting to solvie
problems created by government by calling for yet more
government. So that's why we end up with proposals mandating that
individuals purchase insurance or pay a tax, subsidizing the
purchase of insurance, creating a government-run exchange, and
creating a new government-run plan modeled after Medicare to be
offered on the exchange.
However, the authors of the study argue that New York could
improve their insurance market with several reforms: repealing
guaranteed issue and community rating laws, allowing health
savings accounts in New York, allowing residents to purchase
insurance out of state, and allowing insurers to offer cheaper
plans with fewer benefits. Based on a Zogby survey of currently
and recently uninsured residents commissioned for the study, the
authors find that repealing guaranteed issue and community rating
alone would reduce the number of uninsured in the state by 37
percent. Separately, the authors concede that "even a robust
individual-insurance market would not meet the needs of all
applicants, particularly those with a serious chronic illness
that predates their application for insurance." Their solution is
to create a non-profit high risk pool for those who are otherwise
uninsurable, with their premiums subsidized through a tax on
private insurance plans, which the study estimates would only be
$6 per month if the tax is limited to individual insurance, and
$2 a month if it is broadened to include small group health
plans.
One issue that the paper doesn't address explicitly, but is worth
noting, is that liberals argue that we need to create a
government plan because there isn't enough choice and competition
in the private insurance market. But a major reason for that is
the heavy regulations passed at the state-level, which drive away
companies, hurt smaller insurers that don't have the money to
deal with regulatory compliance costs, and deny individuals the
ability to choose a health insurance plan that suits their own
health needs.
