Benefits mandates

I thought I had a post in the archives making certain points about the value of benefits mandates, but it appears it was only in my mind. Since that’s not a safe place for long-term storage, I’ll mind dump here.

First of all, there are arguments against benefits mandates. A chief one is that they raise the cost of insurance for everyone, including those who would prefer a product without the mandated benefits. Fundamentally, it’s a constraint on the market, which under standard economic theory, generally means its a less efficient market. Point granted!

There are, however, some good reasons to like benefits mandates, or at least some of them. I do not claim that these reasons, individually or collectively, offset the reasons to dislike benefits mandates. I do not claim there aren’t other things one can do to offset some of the following issues. You can make up your own mind.

  1. Mitigation of risk segmentation. In the extreme, people who desire a certain type of coverage (e.g., for mental health or a rare form of cancer) might not be able to purchase it because any policy that includes that coverage also attracts higher risk (higher cost) individuals, pushing the premium to an unaffordable level.
  2. Cost effectiveness. Some benefits might not be cost savings for an insurer but might be generally regarded as cost effective. The view that everyone is better off with a universal, lower barrier to access to such a benefit is not unreasonable. (Yes, it raises the premium, which itself is a barrier to coverage, which I’ve acknowledged. Again, you be the judge.)
  3. Behavioral economics. Perhaps we know we will be more likely to avoid unpleasant, but cost effective services (colonoscopies?) if the price at the point of service is high. But, we really think we are better off getting those services. So, we wish to constrain our choices so that we have to pre-pay for those services (via a premium, with all the loading, of course).
  4. Redistribution. Mandates force the non-users to subsidize the users. For some this is a virtue. For some this is “fair.”
  5. Maybe it’s cheaper. Apart from what’s already mentioned above, this isn’t an argument for a mandate so much as an argument for coverage: even for the little, predictable stuff, it may be cheaper to “insure” than not.
  6. Health incentive plan. “Health insurance” is a misnomer, though it need not be. We could have real health insurance, which would only cover unpredictable events. The fact is, we don’t. It’s possible that’s a good thing, to the extent health care is cost effective or even cost saving. In any case, I once proposed we call these plans health incentive plans.
  7. People demand it. It’s not so implausible that some people want to be told what to do in the realm of health. That certainly seems to be the case. Not all people. Some.
  8. Creates a more effective market. When plans are more similar to one-another, they’re more substitutable as well as more comprehensible by consumers. As such, they must compete more vigorously on price and other dimensions in which they’re permitted to vary. This is one of the principles of managed competition. (In the limit that all plans must be identical apart from premium, price competition would be fierce.) Obviously there is a trade-off. With plans more similar there is less ability for people to find a plan that uniquely suits them.

Got any other pros and cons? Let me hear them.

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