Sunday, 6 November 2011

Mandates in Health Insurance Policies

The Wall Street Journal has an editorial last week on "New York's Mandate Disorder"
On Tuesday Governor Andrew Cuomo signed a bill that will require Empire State insurance companies to cover autism, including screening and a variety of treatments. Mr. Cuomo called it "inexcusable that financial constraints would stand in the way of a brighter future for those affected by this disorder." ...

The economics of mandates are simple: Benefits aren't free, and their costs will be built into insurance premiums. If the government requires insurers to, say, allow "children" as old as age 26 to remain on a family plan, the plan will be more expensive. This is especially true for autism, where therapy can cost as much as $72,000 annually and even $67,000 for a moderate case, according to a study by the Harvard School of Public Health.

The academic rule of thumb is that the average mandate increases premiums by 0.5%, which doesn't sound like much except that states usually go in for dozens. New York has more than 50, which means premiums are at least 20% more expensive than they might be if individuals and small businesses were allowed to make the cost-benefit tradeoffs for themselves. Premiums in New York are roughly twice the national average.

Since the worst of New York's coverage and pricing rules passed in 1994, the individual market has contracted by 96%. Research in 2009 by University of Minnesota economist Stephen Parente and Tarren Bragdon of the Manhattan Institute found that 36% of the New York uninsured would have coverage today if state regulations were merely in line with the national trend.

New York does not say that a company has to provide insurance for employees, just that any insurance company operating in New York must provide coverage for autism and other specific things. Should New York have any such mandates, or should it let the marketplace decide what insurance is offered?


  1. Mandates like these are necessary. Otherwise the insurance companies would cover basically no health costs and leave it entirely up to the individuals. In this case they are at least being forced to recognize serious medical conditions and take on some of the financial brunt. Now if New York could force all workplaces to provide medical insurance then they would really be going in the right direction.

  2. The first step in creating insurance products, if let to the free market, would follow what Rebecca has said. Companies would cover very few of the New York state mandates currently in place. But very quickly companies would recognize that there are particular health care costs that consumers want included in their plans and are willing to pay for through premiums. The policies offered in the state would appropriately assign benefits based on each consumer and their propensity to spend.

    If premiums are lowered and more people begin purchasing insurance in the state, premiums will be pushed down even further. This is the best case scenario for the state of New York - one where there is no mandate to purchase or for specific coverage, but each individual has the opportunity to purchase an insurance product that appropriately covers what their health calls for.

    New York would be wise to consider the most recent political action in Ohio, where each individual county in the state struck down a vote to require a 'mandate' like the one required in President Obama's health care bill. Ohio plans to use this as a legal argument against the President's bill and it is a clear sign that Americans want the issue of insurance left to the consumer and out of the hands of the government.

  3. I think it is important for there to be a balance between mandates and what the markets require. In this case I think that New York should first get their policies in line with the national policies, and then concentrate on adding beneficial mandates. I do think it is important to include mandates like the Autism mandate, but they should also focus on making these policies attractive to people who would otherwise go to the individual insurance market.

  4. I agree with Danielle and Rebecca. There must be some middle ground where there is a combination of absolutely necessary mandates and what the market demands. New York’s policy should be aligned with the basic national policy before looking into what the state’s specific needs are. It may mean expenses increase but in situations where certain segments absolutely need aid, the health of the population should be the most important.

  5. I also agree with the comments above. I understand Gov. Cuomo mission to ensure that people with autism get coverage, but at the same time the high premiums that ensue from that are preventing others from getting insurance (the article mentioned that without the mandates, 36% of the people currently without insurance would have it). It would definitely be better to let the public decide which of the mandates they want to tack on to their insurance plan.

  6. We need to look for the market failure that makes mandates helpful. Remember: a mandate is a law saying that consumers are not allowed to buy insurance policies lacking particular kinds of coverage. In most cases, consumers would rather pay less and omit things like autism coverage. The question, then, is why consumers should be forced to buy autism insurance when they don't want to pay for it.

    Insurance is like any product: the company has a strong incentive to choose a product that people will buy. A company that offered a plan that didn't cover anything wouldn't sell any policies either. The main potential market failure, which Jordan alluded to (though it's not an externality---that's a different market failure) is poor information. People, or the employer who buys the plan for them, need to realize what kind of policy they're buying. Possibly they also need to be forced to buy expensive insurance, if they simply can't understand why it's the best use of their money, so the government needs to prevent them from spending less on health care.

  7. This sounds like a textbook case of strong patternalism. People cannot choose the less costly option because the state wants everybody with insurance to have a certain quality level of insurance. I think there are inherent tradeoffs. I believe only about 1% of the population is autistic; hence, it seems that this is a costly tradeoff if we can say that 36% of the uninsured could have insurance but instead we are more willing to help the 1% of people affected by autism.

    To me this seems more of a morality or ethics question. Personally, I feel that insuring as many people as possible by covering only the most statistically probable diseases or medical conditions makes more sense. This would mean that more companies would provide insurance to their employees, and each employee could buy a supplemental policy f he/she desired one.

  8. Mandate insurance programs don't always work. Before forcing people to include autism coverage, the government should first assure that people really need it. Even if people are advised to buy one, they still have the right to avoid the insurance cost. It's their business to make the trade off. However, if autism is a big problem in NYC and will be disastrous to the society, the government can use some forces anyway. It's like that you should forbid drugs but allow cigarettes.