5. Creating Freedom of Choice in Health Insurance

Problem: Mandated health insurance benefits imposed by state governments as well as other state regulations are increasing the price of health insurance and pricing as many as one out of every four uninsured people out of the market for health insurance.

Solution: Individuals should have the freedom to buy no-frills health insurance, tailored to individual and family needs.

Discussion: The number of Americans without health insurance has increased by 25 percent since 1980 and now totals as many as 37 million people. [23] A major reason why so many people lack health insurance is that state regulations are increasing the costs of insurance and pricing millions of people out of the market for insurance. [24] In recent years there has been an explosion of state laws requiring health insurance policies to cover specific diseases and specific health care services. These laws are called mandated health insurance benefit laws.

  • In 1970, there were only 30 mandated health insurance benefits in the United States.

  • Today there are at least 800 mandated benefits, including legislation passed by every state in the union.

Mandated health insurance benefits cover ailments ranging from AIDS to alcoholism and drug abuse, and services ranging from acupuncture to in vitro fertilization. Mandated benefits cover everything from the life-prolonging procedures to purely cosmetic devices: heart transplants in Georgia, liver transplants in Illinois, hairpieces in Minnesota, marriage counseling in California and pastoral counseling in Vermont. These laws reflect the fact that special-interest groups now represent virtually every disease and disability and virtually every health care service. Currently:

  • Thirty-seven states require health insurance coverage for the services of chiropractors, three states mandate coverage for acupuncture and two states require coverage for naturopaths (who specialize in prescribing herbs).

  • At least 13 states limit the ability of insurers to avoid covering people who have AIDS or a high risk of getting AIDS.

  • Laws in 40 states mandate coverage for alcoholism, 20 states mandate coverage for drug addiction, and 30 states require coverage for mental illness.

  • Five states even mandate coverage for in vitro fertilization.

Collectively, these mandates have added considerably to the cost of health insurance, and they prevent people from buying no-frills insurance at a reasonable price. As Table 4 shows, mandated coverage for substance abuse is very costly – increasing premium prices by 6 to 8 percent. Mandated coverage for outpatient mental health care is even more expensive – increasing premium prices by 10 to 13 percent. Psychiatric hospital care apparently has little effect on premium prices for the primary insured person. But if dependents are covered, premium prices can rise by as much as 21 percent.

These price increases are having an effect. As many as one out of every tour uninsured people lacks health insurance because state regulations have increased the price of insurance. [25] This means that as many as 9.3 million people lack health insurance because of current government policies. Employees of the federal government, Medicare enrollees and employees of self-insured companies are exempt from these costly regulations under federal law. Often, state governments exempt Medicaid patients and state employees. The full burden, therefore, falls on employees of small business, the self-employed and the unemployed – the groups which are increasingly uninsured.

Freedom of choice in health insurance means being able to buy a health insurance policy tailored to individual and family needs. This freedom is rapidly vanishing from the health insurance marketplace. Accordingly, insurers should be permitted under federal law to sell federally qualified health insurance both to individuals and to groups. This insurance would be free from state mandated benefits, state premium taxes and mandatory contributions to state risk pools.




Change in Individual Premium

Change in Dependents' Premium

Home Health Care

+ 0.1 %*

- 5.0 %*

Extended Care

- 0.4 %*

- 5.1 %*

Substance Abuse Treatment

+ 7.9 %

+ 6.2 %

Psychiatric Hospital Care

- 1.7 %*

+ 20.8 %

Psychologists Visits

+ 10.4 %

+ 12.6 %

Routine Dental Care

+ 23.8 %

+ 11.8 %

* = not statistically significant

Source: Gail A. Jensen (University of Illinois at Chicago) and Michael A. Morrisey (University of Alabama at Birmingham), "The Premium Consequences of Group Health Insurance Provisions," September, 1988, mimeograph.