How McCain Misunderstands Health Insurance Benefit Mandates

mccainconfused3.jpgDuring Tuesay’s presidential debate Sen. John McCain (R-AZ) argued that his proposal to allow insurance companies to sell policies across state lines would free insurance providers from “costly” benefit mandates and lower health care costs.

When the senator unveiled his health care plan in April, he suggested that state-imposed consumer protections — which mandate that insurance companies cover diabetes care, cancer screenings, and maternity care — drive up health care costs:

They urge universal coverage, with all the tax increases, new mandates, and government regulation that come along with that idea. But in the end this will accomplish one thing only. We will replace the inefficiency, irrationality, and uncontrolled costs of the current system with the inefficiency, irrationality, and uncontrolled costs of a government monopoly.

McCain’s argument appeals to the bargain hunter in all of us. As McCain explained last night, “Why not? Don’t we go across state lines when we purchase other things in America? Of course it’s OK to go across state lines because in Arizona they may offer a better plan that suits you best than it does here in Tennessee.”

If an individual doesn’t need maternity care, why should he pay higher premiums for a benefit his state requires, but he doesn’t use, McCain is asking. The answer is quite simple: people buy insurance in case they get sick – not to find the services that they ‘need’ — and insurance companies lose money covering serious illnesses, not complying with benefit mandates. In fact, according to state experiences and an exhaustive study by the Congressional Budget Office, “eliminating some of the most expensive mandates — maternity, mental health, and preventive care for children — would bring” only a small reduction to health care premiums.

In other words, insurance companies lose money by insuring sick people, not though benefit mandates. In McCain’s “national marketplace,” some insurance companies (Travelers, we’ll call them) will move to states with few consumer protections and offer cheaper, but less substantive health insurance policies.

The healthiest individuals will likely gravitate towards the cheaper plans, but Americans looking for substantive coverage (of diabetic supplies, for instance) would not be able to purchase coverage from Travelers because these companies would have stripped their plan to the bare essentials in order to attract the healthiest applicants.

Individuals in need of diabetes care would buy coverage from the non-Travelers. But non-Traveler companies would have to increase their premiums, “not because of the cost” of diabetic care “but because of the risk pool” that diabetic care attracts.

Non-Travelers would charge higher premiums because their risk pools are full of diabetic patients who need to use their health insurance; healthier Americans, who balance out the sicker patients in the employer health insurance system, have rightfully migrated to the cheaper plans available across state lines.

Thus, in McCain’s unregulated insurance market, the sick would pay more for coverage, while the not-yet sick won’t have much to look forward to.

UPDATE: Over at Triage, Sandy Praeger, insurance commissioner for Kansas and president of the National Association of Insurance Commissioners, wonders if insurance commissioners will have authority over plans bought across state lines:

“Does my Kansas consumer who buys that product have to go back to the New Jersey commissioner [of insurance] if they aren’t getting the benefits they think they’re entitled to? Do I have the authority to intervene on their behalf?”

Consumers may end up being referred to federal authorities if they have complaints, as is already the case for people who get health insurance from companies that are exempt from state regulation. Large companies that fund their own health plans rather than purchasing insurance fall in this category.

But the reality is that regional offices of the U.S. Department of Health and Human Services aren’t set up to handle consumers’ insurance concerns in a timely fashion, Praeger said. “It’s very difficult for consumers to get their complaints dealt with,” she said.