Arizona lawmakers vote to hike health insurance costs

Via Tom Jenney at the Arizona Federation of Taxpayers comes a warning about a move by the Arizona legislature to force insurance companies to cover the diagnosis and treatment of autism and autism-related disorders.

The passage of the [Autism Spectrum Disorders (ASDs)] mandate is a textbook example of the phenomenon known in public choice economics as Concentrated Benefits and Diffused Costs (CBDC).

Persons who stand to get a lot of money from a piece of legislation have a strong incentive to expend resources (mainly time and money) to lobby in favor of that legislation. Opposition to a piece of legislation tends to be very weak if the costs of the legislation are spread out thinly among taxpayers or consumers.

The ASD mandate will force insurance companies to pay up to $50,000 annually for behavioral therapy for children nine and younger, and $25,000 annually for older children. For families with children suffering from ASDs, that is a huge benefit. It is obvious why they would lobby vigorously for passage of the bill, and even participate in a candlelight vigil outside the Legislature.

At the same time, the costs of the ASD mandate (which may be around $50 annually per insured*) will be widely diffused. Insurance companies will pass on much of the costs to employers who buy insurance policies, and employers will pass on much of those costs to workers. Some workers will pay by losing out on wage increases, while others will pay by being unemployed.

But even if workers had known that the ASD mandate was moving through the Legislature, and that it would cost them real money, they would not have gone down to the Legislature to lobby in an effort to save themselves $50 a year. Such is the insidious nature of CBDC.

Jenney is right, but the danger he warns of isn't some hypothetical crisis of rising costs down the road -- it's been with us for years, and is partially responsible for the soaring health care costs everybody complains about, but which few people want to address in a realistic fashion.

Back in 1997, the National Center for Policy Analysis (NCPA) engaged the actuarial firm Milliman & Robertson to estimate the costs created by government-mandated insurance coverage. At that time, wrote NCPA President John C. Goodman, "Although there were only seven state-mandated benefits in 1965, there are nearly 1,000 today. While many mandates cover basic providers and services, others require coverage for such nonmedical expenses as hairpieces, treatment for drug and alcohol abuse, pastoral and marriage counseling."

In its study, Milliman & Robertson found that "[t]aken together, the package of 12 mandates could increase the cost of a family health insurance policy by as much as 15 to 30 percent."

But that was 1997. How have mandates affected health insurance costs since then?

In 2005, the National Association of Health Underwriters (NAHU) revisited the territory covered by the NCPA. The NAHU's report (PDF), found that the "nearly 1,000" mandates found by the NCPA in 1997 had turned into "more than 1,800."

And costs? The NAHU said, "mandated benefits currently increase the cost of basic health coverage from a little less than 20% to more than 50%, depending on the state."

Mandates are insidious because there's always a good argument as to why any given condition or service should be covered by health insurance. Autism hits home for me, because one of my wife's cousins is autistic. I've seen just what a burden it places on the family of the afflicted. It's not easy to say that this condition should not be covered. But there's always another this condition to add to the growing list of mandates.

What other conditions?

For Arizona, according to the NAHU, there's ambulatory surgery, breast reconstruction, chiropractors, clinical trials, contraceptives, nurse midwives and so on, for a total of 28 mandates (as of 2005). Each of those mandates is strongly favored by a constituency that really wants access to coverage for a specific condition or provider, and each mandate adds just a little bit to health insurance costs.

But together they drive costs up, up and out of sight.

That's a problem, because costs play a big role in whether companies decide to provide their employees health insurance, and whether individuals can afford to obtain health insurance on their own. If employers drop insurance because costs skyrocket, there's a huge impact. The Federal Reserve Bank of Dallas found in 2004 that "71 percent of the uninsured were employed either full-time or part-time during 2001–02."

According to the U.S. Census Bureau (PDF), with 29.3% of their ranks uninsured, young adults 18-24 years old are the least likely Americans to have any health coverage, followed by 25-34 year-olds at 26.9%. Young adults are less likely than older Americans or children to need the grab-bag of special services and providers increasingly mandated by governments. But that's all they can purchase right now; they either buy what they don't want (and can't afford) or they get nothing at all. Many of them would be well-served by bare-bones coverage, or at least the ability to shop for policies that cover only what they want covered, that provide for their care in the case of a serious accident or debilitating illness. Such coverage would be more affordable than what's required now.

That is, eliminating mandates would put health coverage within reach of more businesses and individuals than are reached by the buffet-style care now dictated by law.

Tom Jenney quotes Arizona state Sen. Jack Harper (R-Surprise), one of the few legislators to oppose the autism mandate, as saying:

I have never voted for an insurance mandate since I have been in this body. My first year in this body it was part of our majority agenda that we would not support insurance mandates because insurance costs were so sky high now because we have 20-plus insurance mandates. This particular one coming up makes me feel like a monster, but I still have to vote "no."

It's too bad that Sen. Harper feels like a "monster," because he's the one who voted to keep health insurance affordable and available. With their continued cheap votes to please a series of constituencies, the legislative majority manages to look like champions of the afflicted while guaranteeing that growing numbers of Arizonans will lose the ability to pay for health coverage.