Guaranteeing Health Benefits Is No Cure

Published August 17, 1994

Health care reformers want to make sure that every American has basic medical care. Most reform bills in Congress thus include a “minimum benefits package.” Unfortunately for health care consumers, the minimum benefits “cure” is far worse than the disease . Minimum benefits packages guarantee overuse and drive up costs, creating an endless, losing battle against health care inflation.

A lot of what politicians call “basic medical care”–physicals, minor injuries, sore throats, and stiff muscles–is routine in nature. Care for these common, expected health care events can be highly elective. Individuals who have insurance that covers ro utine treatments and procedures demand more care than those who are uninsured or whose insurance coverage is less extensive.

The problem arises because insurance simply can’t cover every medical expenditure. We might wish it could. But insurance works only for unpredictable, unexpected, catastrophic events. Fire insurance could never function if everyone’s house burned every ye ar. Auto insurance wouldn’t work if it were expected to cover gasoline and oil changes. And home insurers often refuse to insure people living on coastal properties because floods occur so frequently. Health insurance is no different. It doesn’t work when forced to cover routine, predictable, expected events.

When reformers talk about “basic coverage” for health care, they aren’t talking about insurance at all. They’re talking about prepayment for routine and predictable care. But prepayment systems for routine health care don’t work well in the real world. Th e rapid rise of health care spending during the 1980s and early 1990s can be traced to over-reliance on low-deductible insurance policies. The more recent progress made in controlling spending has resulted largely from employers switching to managed care programs, such as HMOs, that limit their customers’ access to health care.

State mandates, too, have the effect of converting insurance into prepayment. Nearly 1,000 state laws force insurers to pay for various specific, elective treatments. (Illinois, for example, requires insurers to pay for in vitro fertilization.) Those laws boost demand and drive up medical prices and insurance premiums. According to the National Center for Policy Analysis, 8.5 million people are priced out of the insurance market as a result. That’s nearly a quarter of the country’s uninsured population, a nd a much higher portion of the long-term (12 months or longer) uninsured population.

The lesson is clear: The more a system acts like prepayment, the less able it is to control costs.

The politicians’ goal of “basic, comprehensive care for all Americans” sounds appealing. But mandated minimum benefits will bring much higher and faster- growing spending than predicted. The quantity and quality of health care will suffer as a result. “Minimum benefits” will aggravate, not solve, the health care system’s problems.

Eric Banfield is a policy analyst for The Heartland Institute and owner of Banfield Analytical Services.