Health Insurance Heartburn

Published June 1, 2002

Our health care system has a very bad case of regulatory indigestion. After years of an indulging regulatory diet cooked up in both Democratic and Republican kitchens, health insurance heartburn is rising faster than you can say “pass the Rolaids.”

It’s the Diet, Dummy

From 1988 to 1996 we were headed in the right direction. During those years of “lite” regulatory intervention of the health care free market, there was a steady decline in premium inflation to a low of 0.8 percent.

Even with HillaryCare scratched from the menu, a great deal of regulatory food was left on the table. Health care statists had a feeding frenzy on leftover socialized medicine regulations and created an indigestible recipe called the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Following the modest inflation rate of 0.8 percent in premium cost, the expensive regulations in HIPAA started to work their way though the entire health care economy.

Causes of Health Care Heartburn

Excessive government mandates and overbearing regulations play a major role in driving up health costs, according to a PricewaterhouseCoopers (PwC) study released in May by the American Association of Health Plans.

Projecting an overall premium increase of 13.7 percent for 2002, PwC attributes 15 percent of that increase to government mandates and regulations, 7 percent to litigation, and 5 percent to fraud and abuse. Taken together, regulations, litigation, and abuse thus account for 27 percent of the increase in health care costs in this country, more than any other factor. Other factors included new technologies like drugs and medical devices (22 percent); rising hospital expenses (18 percent), general inflation (18 percent), and increased consumer demand (15 percent).

More than 1,500 mandated benefit laws have been passed since 1970. “Each mandate adds its own cost, and collectively they have significantly increased health care costs,” concludes the PwC study. HIPAA alone will add billions of dollars in new compliance costs; if a federal patients’ bill of rights passes with significant expansion of health plan liability, health insurance premium costs will increase over the current highs.

As I write, state and federal health care chefs are mixing up more regulatory recipes that go beyond legitimate consumer protection. They offer pure political micromanagement … and none of these proposals has been subjected to any serious cost analysis or market impact.

Chef Daschle (D-South Dakota) added an amendment to the Fast-Track Trade Bill that includes unprecedented federal health care benefits for workers who lose their jobs as a result of free-trade pacts. Further, the amendment would provide one year of health care benefits for retired steel workers who lost health insurance as a result of recent bankruptcies. The Democrats’ own estimate of this spicy bit of inflationary legislation is $400 million.

Even worse (if that is possible), it is fair to suggest Democrats will later try to expand the program to include other unemployed people or employees whose employers do not provide health insurance.

Heartburn Rx

The political health care agenda should be about expanding access. Instead it’s about more regulation, more mandates, and more costly micromanagement of a system showing severe gastric distress.

There are two popular schools of thought about the best solution to the problems caused by legislators:

  • Some believe in a single-payer system, insisting the only way to get real control is through a complete government takeover of all matters health care. Look at the Health Care News series on health care in Britain to see where that philosophy will take us.
  • Then there are those of us who believe in a system that engages the power of consumers to force efficiencies in the health sector by demanding the best value for their money. This is not brain surgery. It is common sense, proven daily in other properly functioning sectors of the free market. This, by definition, rules out the central control-and-control model used in Medicare and Medicaid.

It’s time to stop the nonsense inherent with politically driven health care and make the move to consumer-driven health care. Specifically, we need to embrace Medical Savings Accounts, defined contribution plans, SimpleCare, high-risk insurance pools, and tax credits for health care-related insurance premiums. We need to move away from third-party payments where possible, expand the use of mandate-free insurance policies, and privatize Medicare and Medicaid.

And until we reach those lofty goals … pass the Rolaids.

For more information …

The full text of the May 2002 PricewaterhouseCoopers study is available on the Internet at

Conrad F. Meier’s series on British health care, “Health Care in England: Not Your Cup of Tea,” ran in the September and December 2001, and the March, April, and May 2002 issues of Health Care News. All are available on The Heartland Institute’s Web site at