Reforming Health Insurance: Competition Across State Lines




State governments often operate with limited administrative and technical resources and are highly vulnerable to lobbying by interest groups. Medical providers—physicians and hospitals—are well represented in state capitols, and they frequently push legislatures to mandate that insurers pay for services that they provide, as a way to increase the sales (and prices) of these services.

The typical state had fewer than one benefit mandate in 1970; by 2017, the average was 37. James Bailey of Temple University has estimated that each benefit mandate enacted by states tends to increase health-insurance premiums by 0.4%–1.1% and that new mandates were responsible for 9%–23% of premium increases during 1996–2011. Benefit mandates may have added value to insurance coverage by preventing insurers from leaving gaps in coverage, in order to deter sicker individuals from enrolling.[9] Still, in a study of the period 1989–94, Frank Sloan and Christopher Conover of Duke University estimated that 20%–25% of Americans without health insurance were deterred from purchasing coverage because of the added costs resulting from benefit mandates.[10]

Lobbyists for hospitals and physicians have similarly pushed states to enact laws that increase their pricing power, by making it hard for insurers to exclude them from networks of covered providers. When HMOs began to squeeze hospital costs in the late 1990s, more than 1,000 bills were introduced in state legislatures. Most states enacted laws requiring insurers to reimburse “any willing provider” for treatment according to their standard payment arrangements. A study by Maxim Pinkovskiy of the Federal Reserve Bank of New York found that anti-HMO state laws drove up the incomes of medical providers, increased service use, slowed reduction in hospital lengths of stay, and caused U.S. health-care spending to increase by 2% of GDP—accounting for much of the growth in health-insurance costs in the early 2000s.[11]

Author(s): Chris Pope

Publication Date: 8 June 2021

Publication Site: Manhattan Institute