RALEIGH – Health care reform is one of the most complicated and poorly understood issues facing policymakers at all levels of government. An apt metaphor would be an onion. For every layer you peel back, it seems, another is revealed.
The price of health insurance is rising rapidly, for example. In the public sector, Medicare and Medicaid threaten to overwhelm federal and state budgets because of demography (aging), structural flaws (there is no incentive not to consume), and an unwillingness to enforce eligibility guidelines (middle-income people often qualify for free nursing-home care without having to sell their homes and other assets). In the private sector, a major factor is the tax treatment of health insurance, which creates artificial reasons for people to buy coverage from their employers and to use insurance to cover routine expenses rather than just catastrophic events.
There’s another layer: state taxes and regulation. A striking feature of rising insurance premiums is that the inflation is highest in the small-group market, leading many small and medium-sized employers to drop their health plans altogether. What many non-professionals don’t realize is that these plans are required by state governments to bear costs that large employers rarely have to shoulder.
Most firms in the latter category don’t actually purchase health coverage from a separate insurance provider. Instead, they set up a self-insurance plan. Within the firm, premiums are pooled and used to pay claims. Self-insured firms then hire insurers or their affiliates to “manage” their plans, making them similar to commercially available insurance in many respects. But under a federal law called ERISA, self-insured plans are exempt from state-level taxes and regulations.
That means that when the legislature levies a premium tax on health insurance, the law applies to the plans purchased by small companies or individuals – but it doesn’t typically apply to large corporations or their employees. Similarly, when lawmakers enact mandates to force private insurers to cover specific illnesses or treatments, the mandates don’t apply to the big boys.
Many workers prefer to have their health plans cover chiropractic, podiatry, dentistry, drug treatment, or mental illness. But they are also insulated from perceiving the true cost – unless their plan gets too expensive and goes poof. It would be far better to deregulate the insurance market so that firms or individuals could purchase whatever level of health coverage best meets their needs and their budget.
North Carolina has a particular problem in this regard, as a recent Council for Affordable Health Insurance study points out. Among the Southern states, North Carolina ranks 4th in the number of health-insurance mandates (with 45), while nearby states such as Tennessee (38) and South Carolina (28) impose fewer.
Insurance arrangements are contracts that allow parties to manage their risks. They aren’t welfare programs, or golden geese that lay magical, cost-free eggs outside the bounds of cause and effect. People should be free to negotiate such arrangements in the marketplace, rather than suffering the unintended consequences of having politicians “help” them into the ranks of the uninsured.
Action to reduce insurance mandates is just one policy, and it is no panacea. It will peel back only a layer of a very fat onion. But it’s a pungent one.
Hood is president of the John Locke Foundation.