The Commonwealth Fund Blog

Demystifying the Role of Mandates in Health Care

May 23, 2011

Tags: health insurance premiums health insurance

Michael McRaithBy Michael T. McRaith, Director, Illinois Department of Insurance

We choose our homes and our cars, but not one of us chooses cancer or heart disease. Yet, health insurance is the only product in America that an entire marketplace of sellers refuses to offer to a consumer who wants to buy it, has the means to buy it, and is legally eligible to buy it.

In no place is this more apparent than Illinois. In Illinois, individuals can be denied coverage for any reason other than "race, color, religion or national origin." As those in their pre-Medicare years have learned, insurers can deny coverage on grounds that are often opaque. The need for health care forces some of our most capable professionals to forgo talent, ambition, and self-employment in pursuit of health insurance for an ill dependent who needs the guarantee of group coverage.

The entirely for-profit health insurance market in Illinois, including mutual and stock companies, dresses itself in the dulcet tones and slick themes of massive advertising campaigns. Health insurers annually pay tens of millions for marketing on television and radio, and for sponsorships of Chicago's professional and college sports teams. All the while, fewer families receive coverage offers.

Illinois health insurers have amassed capital at unprecedented levels. The state's largest health insurer reported a 2010 surplus of $7.8 billion. The top six health insurers in Illinois reported national totals of at least $28 billion in surplus. Solvency and financial strength have been dwarfed by capital accumulation.

For at least 10 years, small and mid-size insurers have been leaving the Illinois market or have been purchased by larger insurers. What was once a moderately competitive market is now "highly concentrated," leaving families and employers stranded in an inefficient market that offers less choice and higher cost.

Consumers pay more for less coverage. Reimbursements by payers to doctors and hospitals are less than ever. Commissions and fees paid by insurers to agents and brokers are less than ever.

Insurers often argue that health care benefit mandates drive the cost of premiums. It is true that health care costs money, and that patients pay premiums and need health care. Therefore, the essential question is whether the cost of the mandated care should be borne by the insurer or the patient.

For example, families with an autistic child want to provide that child with early treatment, services, therapy, and ultimately the opportunity for an independent adulthood. But few families can afford the cost of continuing childhood care into adulthood. A benefit mandate serves the purpose of spreading the cost across the insurer's risk pool, making that child's lifelong care affordable for that family. Prior to the mandate requiring insurers to cover the costs of autism care , many Illinois families incurred massive debt, took second and third mortgages, and confronted personal bankruptcy.

Benefit mandates allow risk pools to absorb the cost of a patient's needed health care. The numbers demonstrate that benefit mandates do not adversely impact an insurers' ability to accumulate surplus capital.

We know Americans want insurers to cover the sick or injured. We also observe that some view the so-called "individual mandate" requiring everyone to purchase coverage as an unwanted intervention by the government.

But the coverage mandate serves an important insurance purpose—forcing the healthy to buy insurance before suffering an injury or being diagnosed with illness. If we could buy insurance after being diagnosed, many hard-working families would understandably not pay a premium until illness struck. Since insurers would almost exclusively be covering the sick or injured, dilatory participation by the healthy in the insurance pool would explode the already-high cost of insurance. This is known proverbially as a "death spiral": insurance markets would be destroyed within months.

In other words, the coverage mandate forces the healthy to buy insurance in order to preserve, not displace, the private insurance market. When we are healthy, we pay premiums and balance the cost of those who are sick. The alternative to the coverage mandate is, of course, a government coverage program, a direction largely rejected by Congress.

Those who argue the mandate is "government gone too far" appear unwilling to acknowledge that elimination of the mandate would necessitate expansion of government health programs. If we want insurers to cover the sick, and if we want to limit the government role in health care, then the individual mandate must stand.

As we stare to the point of blindness at health care statistics, as we listen with increasing numbness to political diatribes, and as we answer 10,000 medical questions, we cannot escape the ineluctable reality of health care. Push to the margins all the arguments and we are talking about people: people who we know, who we care about, people who we love. We are talking about our neighbors, friends, and family.

Even with the din of partisan conflict, every community feels the quiet but relentless drumbeat that pounds for financial security, for quality of life, and for life itself. Even as we pray for their healing, we must never forget the challenged journey of our child with autism, our sister fighting breast cancer, our partner fighting depression, or our parent fighting heart disease. Health care is not some amorphous chattel; health care is life.


This blog post is a commentary published in conjunction with the  Commonwealth Fund/Modern Healthcare Health Care Opinion Leaders Survey on health reform and the role of states.

 

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Jack Zemp of Mondial Assistance says:
May 25, 2011

Commissioner McRaith effectively points out that if insurers simply take a break from doing all they can to maximize profits, and instead take real steps toward building a healthy risk sharing market that effecively spreads the risk (while maintaining a reasonable profit), then the promise of a privately run health insurance system can work. Otherwise, we will continue our slide toward more reliance on governmental programs --not necessarily a bad thing if we can build in market efficiencies and are politically acceptable. I could not agree more that it's time to acknowledge that this is the reality of the situation, so that we can "get on with it" and make it work.