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On the legislative front ...Health insurance regulation unhealthy for policyholders

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Commentary by Robert Propst

for the Business Journal

In recent years, managed care plans, including HMOs and PPOs, have helped curtail double-digit increases in health insurance premium rates. However, costs are still rising, and employers have little choice but to pass additional costs on to their workers or to lower the benefits of their health plans.

While there is no painless solution to this rising cost, some well-intended solutions have actually contributed to escalating the cost of health care instead of lowering that cost.

For example, 16 states* jumped on the reform bandwagon and aggressively regulated their health insurance markets with many of the provisions that the failed Clinton Health Bill incorporated.

These states passed very aggressive insurance reforms affecting both small employers and individual health subscribers between 1990 and 1994.

Obviously, the primary goal in implementing insurance reforms was to increase access for uninsured people to affordable private health insurance. Yet the increased state mandates and regulations in these 16 states have actually harmed the very people that they attempted to help.

The Galen Institute Inc., located in Alexandria, Va., is a not-for-profit institute specializing in health and tax policy research.

A study the institute conducted reveals that these 16 states experiencing reform have produced negative results.

All 16 states found that fewer people were covered by health insurance after the reforms than when the regulations began. In 1996, these states had an average annual growth in their uninsured population eight times higher than that of the 34 states without aggressive reforms.

The 16 reform states had an average growth rate for the uninsured population of 4.6 percent in 1990. By 1996, the growth rate for the uninsured population in these same 16 states had risen to 8.14 percent. In the remaining 34 states, the average growth rate for the uninsured population declined from 3.9 percent in 1990 to 1.02 percent by 1996.

The reforms passed by all 16 states experiencing detrimental results included these mandates:

?Insurers must sell to any person who is willing to buy;

?Insurers must guarantee issuing coverage even for the person who waits until he or she is sick to buy insurance;

?No pre-existing conditions may be excluded;

?Prices must be based on pure community rating everyone is charged the same price regardless of the difference in individual risk.

In an article published by the Heritage Foundation in August 1998, Grace-Marie Arnett, president of the Galen Institute, with Melinda Schriver, a senior research associate, provides a good explanation of why these reform efforts failed.

"The health sector is the most heavily regulated in the American economy. In every other industry, Americans recognize that regulations drive up prices, restrict innovation, dry up competition and force businesses to cater to regulations instead of consumers. This is what is happening in the health sector.

"These data show that Americans are paying a high price for the mistakes of well-intended but flawed legislation. The misguided efforts of lawmakers to over-regulate insurance markets have backfired, squeezing more and more people out of the system."

Rep. Tim Harlan is proposing similar detrimental mandates in Missouri. House Bill 718 was originally a constructive bill establishing a commission to study the impact of mandated benefits. However, during the Feb. 18, 1999, meeting of the House Critical Issues Committee, Harlan introduced a substitute that changed HB 718 dramatically.

Harlan's substitute bill currently includes the following:

?Guaranteed issue of coverage;

?No pre-existing conditions excluded;

?Community rating;

?Reducing group size to groups of one, thereby merging the individual market with the small-group market.

Opponents of HB 718 consider it a tax bill. Gary Maineschein, vice president of government affairs with Blue Cross Blue Shield said, "HP 718 is a tax on all those that purchase health insurance. By driving up costs and making coverage less affordable, the bill punishes those individuals and employers who are conscientious enough to purchase health insurance."

Why then are Rep. Tim Harlan and other well-intentioned legislators promoting more mandates? Why would we think Missouri would fare any better than the 16 states that have already incorporated these reforms? Recent history shows that extensive regulation at either the state or federal level is counterproductive in providing a solution to increased access to affordable health care.

Experts like Grace-Marie Arnett, who research the impact of government policies, tell us lawmakers should focus on policies that allow individuals to purchase health insurance that they own and control themselves in a free, competitive and well-informed marketplace. Such policies would enable consumers themselves to transform the health sector in a market driven by competition, innovation, value and choice.

There are several actions that states can take to help reach this goal, according to Arnett, among them:

?Encourage changes in federal tax laws;

?Initiate the delivery of state tax relief;

?Review all currently enacted health care regulations and eliminate those found to be harmful;

?Dismantle regulatory boards established with previous reforms;

?Abolish pure community rating;

?Stop expanding benefit mandates;

?Promote experimentation of coverage for the uninsurable.

"A far better approach would be to empower individuals and families to make health care choices that suit their own needs, restore the independence and integrity of the medical profession and force insurance companies to compete for consumers' dollars," Arnett said. "The health care delivery system at all levels should be accountable directly to the individuals and families served."

*The 16 states referred to are Idaho, Iowa, Kentucky, Louisiana, Maine, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Utah, Vermont and Washington.

(Robert Propst is vice president, employee benefits, with BPJ Insurance.)

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