Published in Standard-Examiner, Ogden, Utah, November 12, 2009.
By Vijay K. Mathur
The health insurance industry is regulated primarily by states. Over the last two decades, mandates of benefits, providers and covered persons in health insurance have proliferated. In 2008 there were 1,961 total state mandates, while Utah had only 12 mandated benefits. Mandated benefits, according to the Council for Affordable Insurance, are partly responsible for increasing the cost of basic health coverage "from a little less than 20 percent to more than 50 percent, depending on the state and its mandates." But a detailed literature review of various actuarial and statistical studies by the Rutgers Center for State Health Policy for the state of New Jersey found no clear cut evidence for an adverse effect of mandates.
Even though the evidence is murky, insurance companies have responded to cost increases of state mandates, for example, by increasing insurance premiums, deductibles, co-pays, and denying insurance for pre-existing conditions. The House bill, passed recently, contains federal-mandated benefits as well.
Aside from insurance companies and providers, most people do not raise objections against mandated benefits, providers and covered persons. To alleviate asymmetric information problems, when patients have limited information about medical procedures and quality of treatments, the states mandate benefits and quality of care. Also, certain minimum benefits and quality requirements are deemed important, because a healthy society is in the public interest.
In 1986 Congress passed the Emergency Medical Treatment and Active Labor Act (EMTALA), as part of the Omnibus Budget Reconciliation Act. It mandated that participating hospitals and ambulance services provide emergency health care to anyone needing the services. Those who accept payment from the Department of Health and Human Services, Centers of Medicare and Medicaid Services, are considered participating hospitals. Exceptions are Shriners hospitals, Veterans Affairs hospitals and Native American health service. Besides increasing cost to providers of emergency care, this mandate by EMTALA provides the incentive to people not to buy health insurance. Hence,those who are uninsured and do not have Medicare or Medicaid, and can afford to buy insurance, impose cost on others when they get sick and show up in emergency clinics. This is the "free-rider problem." The difference between this mandate and mandated benefits in health coverage, as pointed out above, is that free choice in insurance in light of EMTALA imposes cost of health care of noninsured on those who do buy health insurance.
The right of freedom of choice does not come with the right of freedom to impose cost on others of one's personal decisions. That is the reason why the House of Representatives proposed in their bill that most people have to buy health insurance. It is supported by incentives of penalties for those who do not comply and subsidies to those who cannot afford insurance as based upon the income test.
According to the Centers for Medicare and Medicaid Services (CMMS), 55 percent of emergency care is uncompensated. Kaiser Commission on Medicare and Medicaid found that in 2004 the cost of uncompensated care was $40.7 billion in community hospitals. Current Population Report (CPR) data shows that almost 75 percent of the uninsured in 2008 are within the age group of 18 to 44. If most in this younger age group were part of insurance pools, it would lower health risk factors and hence insurance premiums.
According to CPR, 38 percent of uninsured had household income of $50,000 or more in 2008. CMMS data shows that in 2006 private health insurance expenditure in the U.S. was 6.65 percent of personal income. It would be preferable that everyone must buy affordable insurance, with penalties equivalent to the annual cost of insurance -- to put some teeth in the mandate. No one should be allowed to game the system. In Switzerland cash subsidies are provided to people when insurance expenditure is more than 8 percent of personal income, but the health care system produces better health outcomes with lower per capita expenditure than the U.S. To implement the subsidy cut off point in the U.S., the Swiss model could be used as a benchmark for personal spending on health insurance by all earning Americans, including the uninsured.
The contemplated Senate bill provides an option for states to opt out of the national public health insurance plan. Differences in state plans will result in inequities in insurance coverage. The cost to taxpayers will increase due to the duplication of insurance plans at the federal and state levels. Moreover, differences in state plans will make them less portable across state lines. Lack of portability deters mobility of labor and hence disrupts efficient functioning of labor markets. The mandated federal public option will be more cost effective and equitable.
It is hoped that the legislators are paying attention to the best features of the Swiss and Dutch models and design an efficient and equitable health care system which elicits responsible behavior from Americans.
Mathur is former chair of the economics department and professor emeritus of economics at Cleveland State University, Cleveland, Ohio. He is also adjunct professor of economics at Weber State University. He resides in Ogden.