Lit Review: Health Insurance Benefits Mandates

Jason Shafrin is the only other health economist I’m aware of who routinely blogs. He deserves some credit for reviewing literature and posting references. His post today on the effect on premiums of health insurance benefits mandates is a good example. Here’s an excerpt.*

A recent paper by the Pacific Research Institute summarizes the findings of various studies of the impact of mandates on health insurance premiums.

  • CBO (2000): 4 to 9 percent of premiums, all mandates aggregated
  • Graham (2008): 5 to 23 percent of premiums, all mandates aggregated
  • Bunce and Wieske (2009): 20 to 50 percent of premiums, all mandates aggregated
  • New (2006): 15 percent of premiums, all mandates aggregated
  • Congdon et al. (2006): 0.3 to 0.7 percent of premiums, per mandate above 20
  • Wisconsin OCI (2002): 1 to 3 percent of premiums, five specific mandates aggregated
  • GAO (2003): 3 to 5 percent of premiums, all mandates aggregated
  • Krohm and Grossman (1990): 0.2 percent of claims, specific mandated benefits
  • Maryland HCC (2006): 2 percent of premiums, all mandates aggregated
  • Maryland HCC (2008): 0.01 to 1 percent of premiums per each of five specific mandates

… What one can conclude from the above studies is that mandates do increase cost.  The degree to which health insurance premiums increase, however, is not a settled matter.

Of course the notion that mandates increase costs and premiums cannot possibly be controversial except in the case of a small subset of services the increase use of which might offset other, more expensive, health care utilization. An advantage of mandates, or standardization, is that it can decrease complexity and search costs for the consumer, making the market function more efficiently.

Note that costs are increased in two ways: (1) More benefits covered translates to higher insurer payout; (2) More benefits covered attracts enrollment from higher risk individuals. In a market with no standardization low-risk individuals could find less expensive insurance that covers fewer services. But such a market might segment risks so finely that the risk pooling mechanism of insurance ceases to function. That’s made all the more likely in a market with guaranteed issue and no pre-existing condition exclusion periods. Switching products to match needs to coverage is just an extension of the gaming problem I’ve been writing about lately.

* Excerpt reproduced without implication of endorsement of the ideas in the PRI paper cited or validation of the author’s scholarship.

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