Let's Legalize Basic Health Insurance
April 2003
We all know the cost of health care coverage is rising fast, and the trend is hitting the state's small firms particularly hard. Many small business owners would like to offer health coverage to their workers but simply can't afford it. The National Federation of Independent Business reports that in 1993 65% of their members provided health coverage to all their employees, but only 47% do today.
Health care costs are rising for a number of reasons that are clearly beyond the control of state lawmakers, but there is one important factor they do control: the number and cost of state-imposed mandates.
Traditionally, Washington policymakers enacted ever-tighter restrictions in an effort to make health insurance more accessible. Numerous studies now show that this effort was counter-productive. Heavy state regulation plays a major role in driving up the cost of health care coverage. One result is that basic health insurance is no longer legal in Washington. All insurance policies must include added services and expensive extras whether consumers want them or not. It's like a hotel market with plenty of Hiltons and Sheratons, but no Motel 6.
The original idea of mandates was to improve health care while reducing the number of uninsured. In 1963 Washington had a single health care mandate. Today the code contains 47 new mandates and expansions of existing mandates, and the legislature seems to add one or two more every session. A particular regulation, like access to acupuncture or foot care services, may seem to help a limited number of people, but any short-term gains are soon offset by higher insurance costs. That in turn makes it harder for the most vulnerable in our society to get any coverage at all.
It is not hard to see how we got into this situation. For elected officials mandates are a tempting give-away to favored industry interests or influential patient lobbies. Mandates seem "free" because they do not appear in the budget. Though unseen, their financial cost is actually quite high. Congress' General Accounting Office estimates state mandates can add as much as 22% to the cost of health coverage. National accounting firm Price Waterhouse Coopers estimates state mandates account for about $10 billion a year in higher insurance premiums.
Mandates also carry a high social cost. State rules force consumers to pay for coverage they don't want, while denying them insurance options they do want and would choose if available. That means many decisions about health coverage are made by lawmakers through the political process, not by consumers, doctors and employers.
Rather than taking the usual top-down approach, lawmakers should consider reforms that reduce cost and increase choice. A bill working its way through the legislature would do just that. SB 5521 would make it easier for small businesses (those with up to 50 employees) to buy health coverage for workers by legalizing basic, low-cost insurance plans. The bill passed the Senate and was reported positively by a House committee. If the full House passes it, the bill will soon be on its way to the Governor's desk.
This reform could be an important first step in re-invigorating the health insurance market. Small employers would be free to choose and pay for insurance plans that work best for their workers. As in a normal market, insurance companies would have to respond to the price demands of consumers rather than to regulators.
Our research finds that legalizing basic health insurance would bring four immediate advantages to the people of our state:
When carefully considered, these benefits are not surprising. A study from The Heritage Foundation sums up the problem created by too many mandates; "regulation of an industry drives up prices, restricts innovation, dries up competition, and forces businesses to cater to regulators, not consumers." If basic insurance is allowed for small businesses, the legislature might consider extending the same benefit to larger firms and to individuals and families. A vigorous policy of cutting unnecessary health insurance regulations would lower costs, streamline administration and promote affordable health coverage for all Washington citizens.