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State Policies Driving Up Insurance Cost


State Policies Driving Up Insurance Cost

E. J. McMahon May 24, 2005
Urban PolicyNYC

If there's one thing on which virtually everyone in Albany agrees, it's the need to expand the availability of health insurance to the roughly 3 million New York state residents who lack it.

As of 2002, just over two-thirds of all New Yorkers younger than 65 had private health coverage, well below the average for neighboring states and the nation. And as costs rise, the number of private employers offering coverage has been shrinking.

But the more concern we hear about the shortage of affordable health insurance, the worse it seems to get. That's because the state government's own policies make health coverage more expensive than it needs to be.

For example, the tax burden on health insurance sold in New York has been steadily increasing for 10 years. In 2005-06, the state will collect roughly $2.1 billion in taxes and assessments from private health plans.

In fact, private health insurance plans now rank as the Empire State's third largest source of non-federal revenue, behind the personal income and sales and use taxes. It's axiomatic, of course, that when you tax something more, you get less of it - at a higher price.

A second big problem is the state's insistence on requiring all health insurance policies to cover a large array of treatments, conditions and providers. New York imposes 43 health insurance mandates - among the most of any state and well above the national average.

As a result, you are not legally permitted to purchase a health insurance policy in New York that covers, say, regular doctor's office visits - unless the policy also covers chiropractors and infertility treatments, among many other health services you may not ever need or want.

It's been estimated that health insurance mandates add roughly 12 percent to the cost of a typical health insurance policy in New York. Yet new mandates are proposed virtually every state legislative session.

A far better policy option would be to give consumers - not managed-care executives and politicians - more freedom to shape their own health insurance coverage. Under a "consumer-driven" approach, individuals could choose from a wide variety of health insurance plans.

One increasingly popular variant, coupling tax-free Health Savings Accounts (HSAs) with high-deductible policies, promises savings of up to 40 percent.

The expanded use of HSAs is encouraged by the new federal Medicare Law, but New Yorkers and their employers won't be able to tap the full potential of that unless more is done to clear away the thicket of mandates and regulations still encumbering the health insurance market in the state.

The good news is that a bill designed to foster HSA-style "Freedom Health Insurance Plans" has been introduced in the state Legislature. Unfortunately, the proposal has not gotten far in the past in the Democrat-controlled state Assembly.

Free markets shaped by consumer preferences have worked wonders in other areas of the economy. We rely on the marketplace, largely unencumbered by government, to supply other necessities at prices we can afford. It's time New York gave freedom a chance in health care as well.