The Agenda

Quick Note on State Insurance Mandates

Back in February, Scott Gottlieb, Tevi Troy, and Paul Howard offered a set of ideas for how conservatives might seek to reform the Affordable Care Act in the coming year. One particularly attractive reform is the following:

Right now, Washington sets a floor on mandatory benefits, but then each state gets to push it higher with no penalty for imposing requirements that raise costs. States will have ample incentive to grandfather in all their costly mandates, while adding even more.

Instead, the minimum benefit should be tied to a single, national standard that sets a floor based on what a basic, consumer-directed plan now offers. This will give plans incentive to compete around their ability to expand coverage while still maintaining a competitive price. Right now, with routine benefits dictated by Washington, plans compete on price alone. Their only incentive is to cut costs by clamping down on the catastrophic benefits Washington doesn’t try to control and to get financial leverage over utilization by offering consumers narrow networks of providers to choose from.

Recently, I argued that Congress should consider replacing state-based insurance exchanges with a national insurance exchange for a closely related reason:

Rather than have the federal government build state-based exchanges governed by state insurance regulations, Congress should consider building a national health exchange. Insurance plans sold on the national health exchange would have to be certified by the federal government, just as employer-sponsored health insurance plans offered under ERISA have to meet certain minimum requirements, but regulations and mandates would be kept to a minimum. Whereas families purchasing insurance on state-based exchanges would have to change their policy on moving to another state, a national health exchange would make health insurance truly portable, thus removing a significant burden. And while Congress might eventually mimic state legislatures by imposing expensive regulations and mandates, it would have to bear the cost of the higher subsidies that would be required to keep insurance plans affordable. This is a powerful built-in accountability mechanism.

Earlier today, Ezra Klein made the following observation about state insurance mandates:

Insurance is currently regulated by states. California, for instance, says all insurers have to cover treatments for lead poisoning, while other states let insurers decide whether to cover lead poisoning, and leaves lead poisoning coverage — or its absence — as a surprise for customers who find that they have lead poisoning. Here’s a list (pdf) of which states mandate which treatments.

The result of this is that an Alabama plan can’t be sold in, say, Oregon, because the Alabama plan doesn’t conform to Oregon’s regulations. A lot of liberals want that to change: It makes more sense, they say, for insurance to be regulated by the federal government. That way the product is standard across all the states.

It is also true, however, that many states impose coverage mandates that are driven by the interests of medical providers, and that make coverage prohibitively expensive, which is one reason why employer-provided ERISA plans, which are shielded from state mandates, are often preferred over plans regulated by state governments. 

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