Analysis: State Mandates Drive Up Insurance Costs

Published May 1, 2005

Five numbers tell us a lot about health insurance and the health care issue in the United States. They are 4,044; 1,188; 1,823; eight; and 4662.

States’ Insurance Prices Vary

The first number is $4,044. That is how much the average individual who lives in New Jersey will pay for health insurance in one year. For someone who lives in New York, the number is $3,996. These numbers come from an April 2004 survey by eHealthInsurance, the online health insurance company.

The second number, $1,188, is the average annual premium for a single person buying health insurance in Iowa or Wyoming. $1,188 versus $4,044. Health insurance in New York and New Jersey costs three-and-a-half to four times as much as in Iowa and Wyoming. Why would that be?

Maybe it is because of geography. The expensive states are in the Northeast, and the inexpensive ones are in the Midwest.

But in Pennsylvania, a neighbor to New Jersey, the average individual premium is just $1,488 a year, according to eHealthInsurance. The average nationwide is $1,812 a year.

Increased use of expensive technology and prescription drugs can’t be the reason, because they are using more technology and prescription drugs in Iowa and Wyoming, just as they are in New Jersey and New York.

The explanation isn’t so much what is going on in the health care industry, as what the government is doing to health care.

Mandates Increase Insurance Prices

The third number is 1,823. That is the number of state mandates insurance companies must comply with across the nation, according to a report issued by the Council for Affordable Health Insurance (CAHI) in January 2005.

A mandate requires health insurance to cover a particular provider, a particular benefit, a particular problem, or something of that nature. There’s a range of different things states have required health insurance to cover, including chiropractors, podiatrists, nurse midwives, drug and alcohol abuse counseling, and even, in a few states, hairpieces for people who’ve had cancer treatments.

According to the CAHI report, the number of mandates varies significantly by state. Minnesota has the most, with 62 mandates. Idaho has the least, with 13.

If a state legislator were to tell you we must have these mandates in order to make health insurance good and effective to protect people, you should ask yourself: Have you read stories about people in Idaho falling dead because they don’t have enough insurance mandates?

Illinois has 47 insurance mandates, right in the middle of the pack. But you don’t hear any stories of people in Illinois suffering because they don’t benefit from all the mandates Minnesota has. These mandates do not improve the quality of health care; they only raise the cost of insurance.

Guaranteed-Issue Hurts Competition

The fourth number, eight, is the number of states that have imposed guaranteed-issue requirements on insurance carriers selling individual health insurance in their states.

Guaranteed-issue rules require health insurers to provide coverage to whoever applies. New Jersey and New York are the only two guaranteed-issue states in which eHealthInsurance does business and for which it has rate information.

That is not a coincidence. It can be very difficult to buy individual health insurance in the states that impose guaranteed-issue. Most of those insurers have left.

Politicians want to say they made sure anyone can buy health insurance when they need it, and that the insurance they buy covers every possible ailment. So they impose regulations intended to achieve these results. But those those policies cause insurance prices to soar. And when that happens, the politicians blame everyone except themselves.

Health insurance is regulated by the state where you live. So you don’t have the ability to say: “I live in Illinois, but there is a great policy in Iowa, or Wyoming; I am going to go buy that policy.”

Proposed Bill Offers Solutions

The last number, 4662, is the number of a bill in the U.S. House of Representatives, introduced in 2004 by Rep. John Shadegg (R-AZ). It is called “Creating Healthier Options in Insurance through Choice and Efficiency,” or the CHOICE Act. The legislation would allow people living in one state to buy health insurance approved and available to people in other states. It would permit a person to buy health insurance across state lines.

State regulators really dislike this idea, because they like to regulate, and this law lets insurers slip out from under their regulations.

And there may be some other problems. Most of us who have health insurance are in networks. Can you get to that network of doctors if you buy a health insurance policy from a carrier in another state?

One of the things I have found out recently is that this already goes on all the time. If you are living in Pennsylvania, and you buy a health insurance policy in Pennsylvania, and you move to New Jersey, you can take that policy with you to New Jersey. You may pay a little more for the policy in New Jersey, but you are not going to be paying the $4,000 nearly everybody else in the state has to pay. In other words, under current law, if you buy a policy and you change states, you can take that policy with you.

One insurance company executive explained, “If they move to a state where we don’t have a network of physicians, we give them the option to move to a traditional indemnity policy, so they can stay with us as an insured if they want to.” That goes on right now. This legislation would expand choice and increase competition, and give people stuck in high-cost states the ability to buy health insurance in those low-cost states.

States Can Remove Mandates

If states fail to repeal unnecessary and costly mandates, is federal legislation the best way to do it? Would it take away the ability of state legislators to protect us?

If state legislators believe that, they should remove the mandates, remove the guaranteed-issue requirements, welcome the insurers back into their states, and give us a choice of inexpensive policies within our own state.

If they don’t, then they should let us go outside of our own states, and Congress may have to step in and let us do that.

Merrill Matthews, Jr., Ph.D. ([email protected]) is director of the Council for Affordable Health Insurance. This article is derived from a presentation he delivered in September 2004.

For more information …

Health Insurance Mandates in the States, issued in 2005 by the Council for Affordable Health Insurance, is available online at

“How Eight States Destroyed Their Individual Insurance Markets,” a Health Care News series of reports addressing guaranteed-issue and community rating mandates, is available online at