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.