What is a Health Care Mandate?
Every year, we can count on a few new health care mandates to be put forward in the General Assembly. Last year, a mandate regarding chiropractors passed the Senate, and a mandate for autism was passed into law.
We used the analysis of the autism mandate to illustrate exactly how health care mandates increase the costs of health insurance.
So Kentucky insurers are now mandated to include coverage of up to $50,000 per year for a $70,000 service for almost 1% of Kentucky's children. Thanks to analysis included with the bill, we have an estimate of how much this costs: $8.3-10.4 million annually.
Broken down on a per insurance-subscriber basis, it is estimated to cost $24-$30 annually for a member of a large group plan, and about $10 annually for a small group or individual subscribers.
This $30 annual cost increase accounts for almost 1% of the average premium for employer-based coverage in Kentucky. So next year, when your health premiums go up 5%, you can attribute one-fifth of that directly to this bill.
Mandates increase the costs of health insurance by forcing policyholders to pay for the newly mandated service, regardless of the cost-benefit evaluation an insurance company might make or the cost-benefit evaluation the policy-holding individual might make for themselves in the health care marketplace. One can argue whether the insurance company is a good actor in making this evaluation, but when coverage is mandated, the price of that service must play into the overall cost of the insurance policy.
Sometimes, instead of mandating a particular coverage, the government will mandate prices. Two bills this year take this approach - HB 230 and SB 112
The cost of a policy is determined by an evaluation of the cost of providing covered services to the policy-holding group. When the price for a particular service is mandated, it affects the policy's cost in two ways. First, the prices of other services covered by the policy will rise in order to cover the cost of the mandated service. Second, the mandate creates different financial incentives to consume services and affects the likelihood of the policy group to consume particular health care services. To the extent that a mandated cheaper price will encourage greater consumption of services (and greater health care spending by the policy group) it will increase the costs to cover the group and increase everyone's premiums.
HB 230 mandates copayment cap of 50% of the reimbursable cost of chiropractor services. The included actuarial analysis suggests that this mandate will increase insurance premiums in Kentucky by 0.5% to 1.5%, and increase overall health care costs by up to $21 million.
SB 112 originally mandated a 20% copayment cap for physical and occupational therapy, which the actuarial analysis suggests is a maximum 0.16% increase in premiums and costs.
Current language mandates that physical therapy office visits should be considered the same as a visit to a physicians or osteopath. While this doesn't mandate a particular price, it does mandate that the copayment will be equal to visiting a physician. If this is a lower level, it will make increased consumption of these services more likely, and must be accounted for by higher copayments for physician services and/or higher premiums.
How bad are these mandates?
We're not going to evaluate the wisdom of the mandates individually, and SB 112 probably won't make our scorecard. Indeed, it's possible that some mandates may incidentally encourage better, more healthful behavior. What is certain is that when the government mandates something, it is one more distortion of consumer choice, and it is a step down the path of greater inefficiency in our system.
