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The 'Consumer Protection' Racket

David Gratzer
The Weekly Standard
September 28, 2009

The Democrats have a new message to justify a massive government intrusion into health care: “consumer protection.”

They once suggested that rules aimed at toughening the oversight of health-insurance companies were just footnotes in the debate about health care. But when the president spoke to Congress last week, he listed activities that will be “against the law” front and center. “What this plan will do,” he said, “is make the insurance you have work better for you.”

Congressional Democrats are hoping to make this issue into a major one. They are holding hearings this month and hauling in insurance executives for a grilling about their business practices. The House Subcommittee on Domestic Policy went first last week, with two days of hearings. Chairman Dennis Kucinich opened the proceedings by stating: “Corporate bureaucrats may put profits before people, thereby becoming as noxious as disease itself.”

The House bill tabled in July is full of attempts to expand the government’s role in regulating health care companies. There is some good in the draft legislation, including a proposal to stop insurers from cutting coverage (known in the industry as “rescission”) without clear proof of fraud and limits to “caps on coverage,” which means that a patient in active treatment for, say, cancer, can’t suddenly be cut off because of an insurance company’s preset limit on lifetime spending. But the bill also includes plenty of ideologically based rules that micromanage every health-insurance policy. It even adds a process to create more rules without congressional debate.

Regulations of coverage are known in health circles as mandates. They require an insurance company to cover common--and sometimes not so common--procedures or specific patient populations. They add billions to the cost of insurance within state markets.

Politicians like mandates because they make them look tough on the always unpopular insurance companies. But the results are bizarre: Under New Mexico law, “oriental medicine” (their phrase) must be treated like conventional medicine in any insurance plan. New Mexico mandates that circumcisions be covered as well as off-label use of medications and naturopathy (a type of holistic medicine).

Other states require that providers cover acupuncture (11 states), osteopathy (22 states), and social workers (27 states). And legislators have done the same for types of care--dental anesthesia (31 states), surgical second opinions (10 states), and hair prosthesis (10 states), to name but three examples. The provider groups, like acupuncturists, lobby hard for these mandates. And, ironically, it’s the big insurance companies that thrive since they are best able to deal with the complexities of regulations and pass on the costs.

It’s not surprising that the number of insurance mandates has exploded. In the 1960s, there were a handful on the books; in 2008, according to the Council for Affordable Health Insurance, the number was 1,961.

There is a clear loser in all this: people trying to get coverage. States with fewer mandates do a better job of controlling premiums. A basic health plan in New York (with 51 mandates) costs a family over $12,000 a year. Wisconsin residents can buy a similar policy for $3,100. One key difference: Wisconsin has only 34 mandates (and they tend to be less expensive than the Empire State variety). In Massachusetts, new state laws broadening coverage produced rising premiums. Why did prices rise, despite the expansion of the insurance pool? The 52 insurance mandates imposed by the state legislature. Only 10 states have more.

In his congressional address, the president called for an end to the discrimination against people with preexisting conditions: “Many other Americans who are willing and able to pay are still denied insurance due to previous illnesses or conditions that insurance companies decide are too risky or expensive to cover.” Ending this practice sounds sensible. The problem is the prescription: community rating, which would force insurance companies to charge everyone the same premium, regardless of age or health.

Community rating attacks a legitimate problem, and it’s not surprising that 15 states require it. But, at the state level, it has priced younger and healthier people out of the market. Johns Hopkins’s Bradley Herring and the University of Pennsylvania’s Mark Pauly analyzed the effects of community rating on insurance in a 2006 paper. Their conclusion: It raised the number of Americans without coverage by as much as 7.4 percent.

And this could be just the beginning. The House bill creates several mandate-generating committees. Bodies like the Task Force on Clinical Preventive Services would have the power to regulate the insurance industry and determine what is a reasonable insurance plan to sell on the national health exchange (the only way for the unemployed, the self-employed, and small businesses to buy coverage). Hidden in the House bill is a committee to take into account “health inequities.”

If these reforms pass, America will be a lot like New Jersey. The Garden State has a slew of mandates and enforces community rating. For a 25-year-old man living in New Jersey the premium on a basic insurance policy is more than five times what it would be if he lived in Kentucky. A few years ago, an insurance coalition pointed out that it was cheaper for a family of four in New Jersey to lease a Ferrari on a monthly basis than to buy a family health care policy.

Obamacare would leave us with too many rules, which would crush innovation and add unnecessary costs with little benefit. This, though, may be just what the Democrats have in mind. For years, they have hoped to shift millions of Americans into a Medicare-for-all type program, and at the core of Obamacare is such a public-option proposal. With support for it faltering, Democrats are turning to regulating the insurance market as the next-best route to Washington-controlled health care.

What Americans want is a health insurance marketplace that is reliable, affordable, and compassionate. Congress needs to stop looking for villains and introduce simple reforms to foster responsible competition. The most effective remedy is also the simplest: Allow people to purchase health insurance across state lines. Consumers could shop around and select a policy that best meets their needs--not the political interests of their state legislators. Those with chronic illness will still struggle to obtain coverage, but subsidized insurance pools--those used in Minnesota could serve as a model--can tackle this problem.

Democrats think they have a winning message by touting the importance of consumer protection. But just who is going to protect the consumer from the government?

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