Another Path to Insuring More Oregonians
While consumer choice is a proven cost-cutter, health insurance mandates raise premiums, resulting in fewer people covered. Oregon should try a pilot project allowing health insurers to offer mandate-free policies, allowing consumers to choose basic, or more elaborate, health insurance coverage suited to their needs and budgets.
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The mounting number of people without health insurance is an oft-repeated political lament in Oregon and across the country. To increase the number of people with health insurance, other states are trying a variety of policy prescriptions from forcing people to buy health insurance or pay fines, to tax breaks and subsidies. But here is a little mentioned, perhaps old-fashioned, way to get more people health insurance: Make it cheaper. Not cheaper due to a subsidy or a tax credit, just less costly.
Consumer choice is one proven cost-cutter; it creates price-lowering competition and lets consumers save money by foregoing features they do not want. On the other hand, health insurance mandates block choice and raise costs. Oregon should try a pilot project allowing health insurers to offer 20,000 health insurance policies free of all mandates. This project would be an easy and affordable way to determine if choice in health insurance can lower costs and raise the number of people with insurance.
What are mandates, and why would a policy be cheaper without them? Mandates are benefits, providers or persons that health insurers are legally required to cover in every policy. As of June 12, 2007, when the governor signed the third mandate passed by the 2007 legislative session, Oregon has 33 such mandates. Examining the basic structure of an insurance market shows why these mandates raise premiums. Insurers pool premiums to pay for unforeseen future events. Mandates increase the number of events for which insurers must pay. To meet these greater expenses, insurers need to collect higher premiums. Health economists at Duke University estimate that without mandates, health insurance premiums would decrease enough that 20-25% of the uninsured could purchase health insurance.
The U.S. Congress tried to address the problem of numerous mandates raising costs by letting individuals buy health insurance from any state, theoretically bypassing the markets of high-mandate states. Unfortunately, the 2004 CHOICE act failed. This pilot project would go farther and let Oregon study the price impacts of removing all mandates.
Higher premiums alone are not the problem with mandates. The problem is that higher premiums are a result of restricted consumer choice. In almost every other market, consumers can choose or reject options that raise or lower their costs. When shopping for cars, buyers can select and pay for the options they want. Choice leads to more affordable basic transportation and more satisfying cars. Even the highly regulated car insurance markets allow choice between degrees of collision and comprehensive coverage.
Health insurance markets eliminate almost all choice, forcing consumers to pay higher premiums even for services that by choice or biological fact they will never use. Obvious examples include non-drug abusers forced to purchase drug abuse treatment coverage, post-menopausal women forced to purchase contraceptive coverage, and people afraid of needles forced to purchase coverage for acupuncture. Forcing higher health insurance premiums is bad public policy when roughly 296,000 of the 700,000 Oregonians without health insurance at some time in the last year said high cost was the only reason they lacked coverage.
The next state legislative session should authorize a pilot program allowing insurers to sell 20,000 health insurance policies with terms set only by the buyer and seller. These policies would allow insurers more accurately to price coverage while giving consumers more freedom to tailor their coverage to their needs.
The legislature should provide funds to monitor this program and produce a report in five years showing the demand for, cost of, and consumer satisfaction with these policies. After five years, the program would end unless legislators extended or expanded it. This program and report would give the state valuable information about the cost, health, and consumer satisfaction impacts of consumer choice in insurance.
Critics often assert that free market health insurance reform would let health insurers “cherry pick” the healthiest customers, weakening the risk pools—the mix of people from which insurers pool premiums—and harming the broader health insurance market. This pilot program would not appreciably weaken Oregon’s risk pools because it is limited to 20,000 policies. Many purchasers of cheaper mandatefree coverage are likely without insurance now and not in any risk pool. Nor would mandate-free policies necessarily mean policies with very limited coverage. Some mandates, like maternity stays and emergency services coverage, are standard medical care that all insurers would cover. Mandate-free simply allows consumers to choose basic, or more elaborate, health insurance coverage better suited to their needs and budgets.
Complaints about rising health insurance costs are tiresome and troublesome. This experiment would let Oregon see if choice can cut those costs. If it succeeds, it could be expanded, providing low cost, consumer-tailored health insurance to more Oregonians. If it fails, the only cost is the limited money the state spends to monitor the program. This is a bargain that the legislature should support.
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