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Tuesday, September 1, 2009

Health Insurance Mandates: Sharing like your Mommy Taught You

There are some ugly words in the health care industry that make people want to throw things. For most, it's words like "pre-existing condition", for some it's "prior authorization". In the world of health insurance toilers, that ugly word is "mandate" or when a government body requires a certain service to be covered. Government bodies probably like the word mandate because they're sticking it to the man. Wait what do you mean the government runs health care! Get your hands off my Medicare you bureaucrats! Sorry, involuntary reaction developed in response to those who haven't lived in the US for the last 40 years and forget that the government is already heavily involved in health care and funds health care for 1/3 of all Americans in the form of 44 million Medicare beneficiaries, 40 million Medicaid beneficiaries (my estimate), and 3 million retired and active military personnel.

After some contemplating during the NPR pledge drive on my commute, I have decided that when mandates are used effectively, they have a certain elegance to them. In more grand terms, I see mandates as the bridge where the free market stops and government programs begin.

The two best example of effective mandates that I can provide are maternity and hearing aids for children.

Maternity: 18 states mandate maternity coverage in the US. In Kansas where they do not mandate maternity coverage, a 35 year old man pays $64 for the same plan that costs a 35 year old woman $104. Given that we need both men and women to make a baby, why do women pay more for the insurance to have a baby? Maternity is generally the most expensive mandate as it can make up 15%-20% of claims cost. However, the ROI on prenatal care has been proven 10 times over and since women don't get pregnant immaculately, I hold this up as an example of an effective mandate. It is an appropriate use of the concept of insurance or spreading medical costs fairly over the population that all will likely use the service. Women are not in a position to negotiate for lower insurance costs so the free market doesn't work in this case.

Hearing Aids for Children: Oregon recently passed a mandate covering hearing aids for children. In this case we are using insurance to fund the services for a select few. However, we are talking about helping children hear so they can stay out of special ed classes, learn in school, and become contributing members of society. If this wasn't mandated, I'm pretty sure someone could pass a hat in the office to cover their child's hearing aids as this should tug at the heart strings of even the most ardent free market advocate. Or even the crustiest members of Congress.

In this case, there wouldn't be a case where the free market would support hearing aids for children. There are too few children who need them and it requires strangers who would never need this service donating $10/year to cover. That is the likely cost in terms of additional insurance premium so it's a cheaper vehicle than a telethon.

In summary, maternity is the only mandate that comes close to exceeding an additional $10 per month. Most mandates are under $1 per month if adding any cost so there isn't evidence to support that mandates are causing huge cost differences between states. The Dartmouth Atlas study or any recent article about McAllen, TX instead shows how variation in provider practice is the main driver of medical costs. Mandates are the noise to distract from the real issues. The only real benefit of allowing people to purchase insurance across state lines is to give men yet another way to avoid contributing to child support through cheaper insurance.

Ineffective mandates: Like different flavors of jelly beans, not all mandates are good. A 2005 Wall Street Journal article points out how some states mandate acupuncture, massage therapy, or chiropractics. Mandates for coverages of a specific provider should be addressed by the free market rather than rely on the state to require financial support of their profession. If acupuncture is effective and important to consumers than insurance companies will find themselves asked to cover it and will lose business to plans that do cover it.

While the 2005 Wall Street Journal articles talks about the thousands of mandates that drive up costs, there's no connections between mandates introduced per year and medical costs. The medical costs with the largest increases are imaging and pharmaceuticals and I have yet to see a mandate that a 3-D image must be used instead of a simple X-ray or for the next generation of heartburn medication. There are also mandates that are covered by plans already, such as telemedicine or requiring that benefits for contraceptive be the same whether it be oral, inserted, or injected. The image of thousands of mandates is more spin than reality.

Some may question my definition of an effective or ineffective mandate, especially the acupuncturist that I picked on. The main difference for me is a consumer-focused mandate vs industry-focused mandate.

Mandating that a consumer be able to access treatment for a condition where the free market has no solution represents the elegant bridge. Treatment can be defined by the plan and it prevents the consumer from having to rely on public plans in the future (either Medicaid or the prison system). Some like to hold up the spector of drug and alcohol treatment as an example of paying for undeserving screw-ups. However, we will pay drug and alcohol treatment in either prisons or through insurance. It's cheaper through insurance and more humane.

Mandating that an entire class of providers be covered sounds more like effective lobbying to me. Or a government takeover of our entire health care system by the Russians! Sorry, there's that involuntary reaction again. I hope we resolve health care reform soon otherwise it might become permanent.

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