Thursday, March 20, 2008

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.

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Anonymous Anonymous said...

I see your point and it is valid, but how about the costs of having these children untreated? Wouldn't the cost of caring for them increase if they don't receive treatment they need?

*PS. I'm biased, my son has autism and I was all for the passage of this. The only reason why I didn't go to the vigil is because he doesn't do well in unfamiliar surroundings.


March 20, 2008 1:08 PM  
Blogger J.D. Tuccille said...


Oh, I'm sure that leaving autistic children untreated would result in higher costs -- and, more importantly, bad outcomes for the kids. But I don't think the choice has to be between no treatment, on the one hand, and forcing everybody to pay for treatment on the other.

There are a range of options for addressing the needs of those afflicted with autism (or other special-needs conditions) -- everything from charging extra for such coverage, to affected families pooling resources, to charity, to straightforward government subsidies. I don't know which approach is best. I do know that mandating that everybody pay for a growing list of required coverages is counter-productive.

The problem is that autism doesn't exist in a vacuum. It's a condition that's worthy of consideration, but so are dozens of others. As we add each worthy candidate to the list of required conditions and providers, the cost of health coverage inches ever-upward. The end result is health insurance that covers everything, but growing ranks of Americans who have no coverage at all because they can't afford insurance that includes all those mandates.

We need to treat health care and the special needs of conditions like autism as separate issues. On the one hand, we make sure that everybody can afford basic coverage (when I was in my twenties, my friends and I called low-cost, high-deductible coverage, "getting hit by a truck" insurance). On the other, we see to it that chronic conditions and special needs are taken care of.

Trying to mix the one with the other creates new and very serious problems.

March 20, 2008 2:15 PM  
Blogger Kim Morris said...

Fortunately the dozoen least most popula low cost health insurance plans in Arizona will be largely unaffected by the mandate since they are not major medical insurance but limited term policies and supplemenetal coverage generally exempt from such legislation, according the products manager to at

March 21, 2008 6:11 AM  
Anonymous Anonymous said...

Good points again, but how hard it is to overcome one's own self-interest...

Just a thought, not sure how valid, but isn't cancer or other difficult conditions covered by insurance? How prevalent are those conditions in society in general? I don't know, but I only ask because now most Autism groups cite the 1 in 150 kids having autism figure nowadays. I'm sure cancer is much more prevalent that that, but it's just a thought.

Thanks again for you insights. I always keep your blog handy and I share it with others regularly.


March 21, 2008 1:42 PM  
Blogger J.D. Tuccille said...


I believe that cancer is generally covered by insurance. My point isn't that all such conditions ought not be covered, but rather that what is and isn't covered should be arrived at according to the demands of buyers and the abilities of sellers. A variety of different sorts of coverage is likely to be the result, from all-you-can-eat packages (with corresponding price tags) to bare-bones offerings (which will hopefully be within reach of those who need basic coverage). Autism is certainly a matter of common concern, so I would expect that at least some insurers would include it in their coverage.

Yes, that means that the costs of covering each condition will not be spread across the entire state population, but it also raises the likelihood that everybody will be able to afford basic coverage.

Anyway, thanks for listening to my arguments. I hope you keep coming back.


March 21, 2008 3:25 PM  
Blogger meshil said...

I don't know which approach is best. I do know that mandating that everybody pay for a growing list of required coverages is counter-productive.
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Addiction Recovery Arizona

June 30, 2008 11:19 PM  
Blogger johnm said...

What if insurance compaines decided to deny coverage for Aids, or childbirth or heart disease? We would all say that's wrong and something should be done. Why is Autism different? Just because all insurance companies decided to arbitrarily deny coverage for this particular condition, we have to have this debate. They generally cover the same type of treatments for children with down syndrome or other mental disabilities but not autism. It's not right.

October 11, 2008 3:10 PM  
Anonymous Rivka said...

Good for people to know.

October 16, 2008 4:55 PM  

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