Mandate or Innovate?
by Greg Scandlen

Mandating that every American be forced to purchase health insurance is the latest fad among Republican politicians. From Massachusetts to California they are embracing the idea as an expression of "personal responsibility" that will help alleviate the "hidden tax" of free care provided to the uninsured.

What the idea really expresses is the woeful ignorance and hubris of some Republican politicians. What they are saying is, "I will tell you what to do, and you have a 'personal responsibility' to do it."

In fact, people who refuse to purchase health insurance are sending an important signal to the insurance industry that their products are not worth purchasing. They are not wrong. Most health insurance products on the market today are bloated with inefficiency and waste. For instance, in the non-group market it is not unusual for 33% of the premium dollar to be used up by administrative costs (a "loss-ratio" of 67%). Then, another third or so of the dollars paid out may be wasted in physicians' administrative costs devoted to complying with insurance company rules and regulations. That means a dollar spent on premium may deliver a mere 45 cents worth of health care services. It is simply not a good use of scarce resources -- especially for routine, low-cost services.

Further, consumers are saying that insurance company benefits are not what they are looking for and the customer services are second-rate. A recent survey by J. D. Powers and Associates found that only 12% of respondents trust their "health plan" (the current euphemism for "insurance company") to provide reliable information.

The regulators and politicians don't help, either. Over the years they have enacted around 2,000 "mandated benefits" that require people to buy coverage for in vitro fertilization and a host of other services they don't want and don't need. Other regulations, such as "community rating" laws require insurance companies to vastly over-charge low-paid young people who consume few services in order to subsidize middle-aged people with higher incomes who consume more services.

Instead of ignoring the signals consumers send and using the police powers of the State to force people to buy what they don't want, the insurance industry and the regulators should pay attention and develop innovative products that will deliver value to this market.

We have already seen that innovations such as Health Savings Accounts will appeal to market segments that did not find value before. Something like 40% of the people who have purchased HSAs in the non-group market were previously uninsured. But HSAs are only one of many possible innovations in health care financing. Mandatory coverage would short-circuit the vital process of innovation in a competitive market.

Further, mandatory coverage simply doesn't work. Politicians, for all their self-regard, do not have the power to wave a magic wand and force people to do what they want them to do. Virtually every state currently mandates auto insurance coverage and the number of uninsured motorists is very similar to the numbers of people without health insurance. In seventeen states the rate of non-insurance for auto (which is mandatory) is higher than for health insurance, which is not mandated.

Finally, people already have a "personal responsibility" to pay the bills they owe. Unfortunately, many health care providers so grossly overcharge people who pay their own bills that the customers give up on trying to pay. It is common for hospitals to charge an uninsured patient 400% more than an insured patient - for the exact same procedure. Yet the cost of performing the procedure is identical for both patients. The overcharging has become so bad that a growing number of uninsured Americans are going overseas for major surgery. Self-pay patients should be charged reasonable bills, and then the providers might discover there is no need to apply a "hidden tax" to people who are insured.

Republican politicians may pass many foolish laws, but they do not have the ability to repeal the laws of human behavior or of economics.

Greg Scandlen is the president of Consumers for Health Care Choices, a national membership organization based in Hagerstown, MD.