Federalism, federal regulation, or free market? An examination of mandated health benefit reform

University of Illinois Law Review

Volumn 2007, Issue 5, 2007, Pages 1361-1416

  Monahan, Amy B ^a  

^a UNIVERSITY OF MISSOURI   (United States)

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EID: 36048951842     PISSN: 02769948     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (293)

1. KEN MCDONNELL ET AL., EBRI DATABOOK ON EMPLOYEE BENEFITS tbl.26.3 (2006), available at http://www.ebri.org/pdf/publications/books/databook/DB.Chapter%2026.pdf (reporting that as of 2006, 46.1 million Americans lacked health insurance coverage). The United States spends more on health care than any other country both on a per capita basis and as a share of national income. NAT'L CTR. FOR HEALTH STATISTICS, U.S. DEP'T OF HEALTH AND HUMAN SERVS., HEALTH, UNITED STATES, 2004, tbl.l 16 (2004), available at http://www.cdc.gov/nchs/data/hus/hus04trend.pdf#l 16.
2. See UNICEF, The State of the World's Children 2006, http://www.unicef.org/sowc06/pdfs/ sowc06_tablel.pdf (last visited Mar. 13, 2007).
3. KAISER FAMILY FOUND., THE UNINSURED: A PRIMER 1 (2006) (stating that 61% of the nonelderly population receives employer-based coverage, 16% receives government-sponsored coverage, 5% purchases individual insurance, and 18% are uninsured).
4. McCarran-Ferguson Act, ch. 20, 59 Stat. 33 (1945) (codified as amended at 15 U.S.C. §§ 1011-1015 (2000)).
5. U.S. GEN. ACCOUNTING OFFICE, GAO/HEHS-96-161, HEALTH INSURANCE REGULATION: VARYING STATE REQUIREMENTS AFFECT COST OF INSURANCE 9 (1996) (stating that on average, states have enacted laws mandating about eighteen specific benefits).
6. Pub. L. No. 93-406.88 Stat. 829 (codified as amended in scattered sections of 26, 29 U.S.C.).
7. See id.
8. As used in this article, the term "mandated benefit laws" refers to state laws that provide for the mandatory inclusion of particular providers, services, or subscribers in the insurance contract. See NAT'L ASS'N. OF INS. COMM'RS, COMPENDIUM OF STATE LAWS ON INSURANCE TOPICS, II-HB-10-1 (2004).
9. See id. at II-HB-10-3 to II-HB-20-16. Author used cited data to calculate the average.
10. Paul v. Virginia, 75 U.S. 168, 183 (1869) (holding that "[ijssuing a policy of insurance is not a transaction of commerce").
11. United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 552-53 (1944).
12. Pub. L. No. 79-15, 59 Stat. 33 (1945) (codified as amended at 15 U.S.C §§1011-1015 (2000)).
13. 15 U.S.C. § 1011 (2000). While the act was billed as a protection for states' rights, it was "the product of the Association of Insurance Commissioners, which drafted a statute and presented it to Congress." Jonathan R. Macey, Federal Deference to Local Regulators and the Economic Theory of Regulation: Toward a Public-Choice Explanation of Federalism, 76 VA. L. REV. 265, 281 (1990). The first significant incursion on the state's franchise to regulate the insurance industry came in the area of product liability, by way of the Product Liability Risk Retention Act of 1981. Id. That act permits product manufacturers to purchase insurance on a group basis in order to reduce the problem of the rising cost of product liability insurance. Id.
14. 15 U.S.C. § 1012.
15. For example, states typically regulate the amount of financial reserves an insurance company must maintain. Katherine Swartz, Justifying Government as the Backstop in Health Insurance Markets. 2 YALE J. HEALTH POL'Y L. & ETHICS 89, 95 (2001).
16. Jonathan Gruber, State Mandated Benefits and Employer Provided Health Insurance (Natl Bureau of Econ. Research, Working Paper No. 4239, 1992);
17. see also U.S. GEN. ACCOUNTING OFFICE, supra note 5, at 9 (stating that, on average, states have enacted laws mandating about eighteen specific benefits).
18. See Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 731 (1985);
19. Gruber, supra note 17. at 5-6;
20. see also TEX. DEP'T OF INS., HEALTH INSURANCE REGULATION IN TEXAS: THE IMPACT OF MANDATED HEALTH BENEFITS 14-17 (1998) (discussing additional reasons why mandated benefits are thought to be necessary).
21. The pricing function is a bit more complex than this simplified explanation. The insurance company will use data that it has regarding the extent to which individuals who request diabetes riders make use of the benefit (presumably a use rate of less than 100%, because not everyone who is at risk for the disease will develop the disease or need treatment). On its own, this would result in a price somewhat lower than the value of the benefits themselves. However, the administrative costs associated with the insurance will drive the price somewhat higher. In the end, the price for a diabetes rider will likely be somewhat lower than the value of the benefits, but it should not deviate too significantly.
22. See 43 AM. JUR. 2D Insurance § 478 (2003) (noting insurance can cover "almost any contingent or unknown event"); id. § 479 (noting insurance is not available for "a loss that the insured either knows of, planned, intended, or is aware is substantially certain to occur").
23. Peter Siegelman, Adverse Selection in Insurance Markets: An Exaggerated Threat, 113 YALE L.J. 1223, 1230-31 (2004). The exact pricing method will vary based on state law. Some states have community rating requirements, which require insurance companies to set premiums based solely on community-level risk, while others allow states to take into account an individual's estimated risk. Even in states that allow individual risk rating, mandated benefit laws still help to spread the risk associated with the disease or treatment. Asymmetrical information is widely acknowledged in the insurance purchasing context, meaning that the insured typically has more information about his or her risks than the insurance company.
24. See id. at 1241. Without mandated benefit laws, the insured signals risk to the insurer when he or she requests a rider to cover a specified condition. When a mandate is in place, that information signaling is unavailable and the insurance company must independently determine risk, which, due to information asymmetries, will result in a certain degree of risk spreading.
25. See Swartz, supra note 16, at 94, 97.
26. See TEX. DEP'T OF INS., supra note 18, at 14-18.
27. Gruber, supra note 17, at 6.
28. Societal costs in this situation may take the form of increased medical costs (when individuals are uninsured and cannot afford coverage, the cost of their care is generally passed along to the state or its citizens), or they may take noneconomic forms such as an unproductive population. Whether mandates are effective in reducing societal costs is not always clear. See, e.g., Jonathan Klick & Sara Markowitz, Are Mental Health Insurance Mandates Effective?: Evidence from Suicides (Nat'l Bureau of Econ. Research, Working Paper No. 9994, 2003).
29. See TEX. DEP'T OF INS., supra note 18, at 68-80 (discussing states' legislative review processes, most of which focus on cost-benefit analysis).
30. See Gruber, supra note 17, at 6.
31. See Andre Hampton, Markets, Myths, and a Man on the Moon: Aiding and Abetting America's Flight from Health Insurance, 52 RUTGERS L. REV. 987, 999-1000 (2000).
32. Various studies have suggested that the cost of mandated benefits averages about twenty percent of premium costs. See Gruber, supra note 17, at 5;
33. see also TEX. DEP'T OF INS., supra note 18, at 25-28 (discussing the difficulty of accurately assessing the impact of mandated benefits on health insurance premiums). However, the one study that has measured the marginal cost of mandates found that state mandates raised health insurance premiums by four to thirteen percent compared to the cost of policies without the mandated benefits.
34. Gail A. Jensen & Michael A. Morrisey, EmployerSponsored Health Insurance and Mandated Benefit Laws, 77 MILBANK Q. 425, 444-45 (1999) (citing Acs et al., Employers' Payroll and Insurance Costs: Implications for Play or Pay Employer Mandates, in HEALTH BENEFITS AND THE WORKFORCE (1992)). Despite the fact that mandated benefits increase costs and therefore decrease coverage, at least one commentator has suggested that mandating benefits is more efficient than public provision of the same benefits.
35. See Lawrence H. Summers, Some Simple Economics of Mandated Benefits, 79 AM. ECON. REV. 177, 178-81 (1989). However, the flip side to the argument is that mandated benefits benefit only those with state-regulated health insurance.
36. See id. at 181.
37. See PRESIDENT'S COUNCIL OF ECON. ADVISORS, ECONOMIC REPORT OF THE PRESIDENT 141 (1991), available at http://fraser.stlouisfed.org/publications/ERP/ issue/1515/download/5812/ERP_1991. pdf.
38. "Take-up rate" refers to the rate at which individuals who are offered coverage elect to take advantage of such coverage.
39. See TEX. DEP'T OF INS., supra note 18, at 25-37 ("For example, a recent news article quotes one large Texas insurer as saying mandates raise the price of insurance by as much as 20%. In the same article, another large insurer estimates the cost to be only about 2%.");
40. see also U.S. GEN. ACCOUNTING OFFICE, supra note 5, at 8-9;
41. Renate M. Nellich, Executive Partnerships in Reinsurance, NAT'L UNDERWRITER LIFE & HEALTH/FIN. SERVS. EDITION, Apr. 20,1998, at 10 ("Since 1975 U.S. benefits have grown from 30 percent of payroll to 41.9 percent of payroll today. Nearly half of the increase is due to the expansion of mandated benefits.").
42. See Gruber, supra note 17, at 3. The study finds that at least part of the reason that mandated benefits do not appear to effect small firms' decision to offer health insurance is that most firms offer the benefits even when they are not mandated to do so. Id.; cf. Paul Fronstin et al., Small Employers and Health Benefits: Findings From the 2002 Small Employer Health Benefits Survey, EBRI ISSUE BRIEF, NO. 253, Jan. 2003, at 6, 14 (reporting that 45% of small employers surveyed believed that "government regulations" were a "major reason" for increasing health care costs, and 63% of small employers surveyed cited "the business cannot afford it" as a major reason for not offering a health plan).
43. While 98% of firms with 200 or more employees offer health insurance, only 59% of small firms (those with less than 200 employees) do so. KAISER FAMILY FOUND., HEALTH BENEFITS OFFER RATES §2, 32 (2005).
44. KAISER FAMILY FOUND., supra note 3, at 1;
45. MCDONNELL ET AL., supra note 1, at tbl.26.3.
46. KAISER FAMILY FOUND., THE UNINSURED AND THEIR ACCESS TO HEALTH CARE (2005), http://www.kff.org/uninsured/upload/The-Uninsured-and- Their-Access-to-Health-Care-Fact-Sheet-6. pdf (stating that the number of uninsured has been rising since 2000, when there were 39.6 million uninsured Americans).
47. Id.
48. Id.
49. Paul Fronstin, Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2005 Current Population Survey, EBRI ISSUE BRIEF No. 287, Nov. 2005, at 15, available at http://www.ebri.org/pdf/EBRI_IB_11-2005.pdf;
50. see also David A. Hyman & Mark Hall, Two Cheers for Employment-Based Health Insurance, 2 YALE J. HEALTH POL'Y L. & ETHICS 23, 26 (2001).
51. KAISER FAMILY FOUND., supra note 3, at 2.
52. Id.
53. Stephen Blakely, The Economic Costs of the Uninsured, EBRI NOTES, Aug. 2000, at 1.
54. Gruber, supra note 17, at 6-7.
55. THOMAS RICE, THE ECONOMICS OF HEALTH RECONSIDERED 82 (1998). The term "moral hazard" was originally used in the fire insurance context, where it was recognized that an individual with fire insurance might be more likely to incur a loss (i.e., set a fire) or be less diligent in preventing fire. Id.
56. See Raisa B. Deber, Canadian Medicare: Can It Work in the United States? Will It Survive in Canada?, 19 AM. J.L. & MED. 75, 87 (1993) (arguing that moral hazard may affect the propensity to purchase insurance, but that it likely does not affect lifestyle choices due to the nonmonetary costs of illness).
57. Rent seeking has been defined as "the attempt to obtain economic rents ... through government intervention in the market." Jonathan R. Macey, Promoting Public-Regarding Legislation Through Statutory Interpretation: An Interest Group Model, 86 COLUM. L. REV. 223, 224 n.6 (1986). In other words, rent seeking occurs when interest groups lobby the government to secure legislation that provides an economic benefit to the group that they would not otherwise enjoy in the absence of legislative intervention in the market.
58. See MANCUR OLSON, JR., THE LOGIC OF COLLECTIVE ACTION: PUBLIC GOODS AND THE THEORY OF GROUPS 143-44 (1965);
59. Robert D. Tollison, Rent Seeking, in PERSPECTIVES ON PUBLIC CHOICE: A HANDBOOK (Dennis C. Mueller ed., 1997).
60. See, e.g., Al Knight, Medical Mandates: Government Puts Squeeze on Employers, DENV. POST, May 18, 1997, at F1.
61. Gruber, supra note 17, at 7. But see Christina H. Park, Prevalence of Employer Self-Insured Health Benefits: National and State Variation, 57 MED. CARE RES. AND REV. 340, 343 (2000) (finding that state benefit mandates have no significant role in the propensity to self-insure).
62. See Am. Med. Sec, Inc. v. Bartlett, 111 F.3d 358, 364 (4th Cir. 1997).
63. For a further discussion of self-insured plans, see infra Part LB.
64. Gruber, supra note 17, at 7.
65. Id.
66. See Employee Retirement Income Security Act of 1974 (ERISA). Pub. L. No. 93-406. 88 Stat. 829 (codified as amended in scattered sections of 26, 29 U.S.C).
67. See Colleen E. Medill, HIPAA and its Related Legislation: A New Role for ERISA in the Regulation of Private Health Care Plans?, 65 TENN. L. REV. 485, 487-88 (1998).
68. Id.
69. Particularly when compared with an average of eighteen benefit mandates per state. See U.S. GEN. ACCOUNTING OFFICE, supra note 5; supra text accompanying note 5.
70. Newborns' and Mothers' Health Protection Act of 1996, 42 U.S.C. § 300gg-4 (2000).
71. 26 U.S.C. §9801 (2000); 29 U.S.C. § 1181 (2000); 42 U.S.C. § 300gg.
72. Mental Health Parity Act of 1996, 29 U.S.C. § 1185a (2000); id. at 42 U.S.C. § 300gg-5 (2000).
73. See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46 (1987).
74. 29 U.S.C. § 1144(a) (2000).
75. Id. § 1144(b)(2)(A) (commonly referred to as the "savings clause").
76. Id. § 1144(b)(2)(B) (commonly referred to as the "deemer clause"). A self-insured plan is one that does not transfer the risk of loss through the purchase of an insurance contract to cover benefit payments. See Am. Med. Sec., Inc. v. Bartlett, 111 F.3d 358, 364 (4th Cir. 1997). Instead, the plan sponsor funds the benefits itself and retains the ultimate risk of loss. Id.
77. Russell Korobkin, The Battle over Self-Insured Health Plans, or "One Good Loophole Deserves Another," 5 YALE J. HEALTH POL'Y L. & ETHICS 89, 105 (2005).
78. For example, a state insurance law requiring a minimum hospital stay of thirty-six hours following childbirth would be superseded by the federal Newborns' and Mothers' Health Protection Act of 1996, which requires a minimum hospital stay of forty-eight hours following childbirth. See 42 U.S.C. § 300g-4 (2000).
79. See Troy Paredes, Stop-Loss Insurance, State Regulation, and ERISA: Defining the Scope of Federal Preemption, 34 HARV. J. ON LEGIS. 233, 239 (1997).
80. See, e.g., Bill Gray Enters. Inc. Employee Health & Welfare Plan v. Gourley, 248 F.3d 206, 214 (3d Cir. 2001); Am. Med. Sec., Inc., 111 F.3d at 364; United Food & Commercial Workers v. Pacyga, 801 F.2d 1157, 1161-62 (9th Cir. 1986).
81. Paredes, supra note 66, at 249.
82. See id. at 249-50.
83. See Medill, supra note 54, at 492-93.
84. In both types of plans, the insurance company typically processes all initial claims. However, employers often have the ultimate authority to decide a claim on appeal from a self-insured plan, whereas the insurance company will decide all levels of an appealed claim in an insured plan.
85. This difference generally is not apparent to a plan participant. The only way for a plan participant to determine the funding status of his or her health plan is to consult the plan's summary plan description, a plain English summary of plan terms that is required to be provided pursuant to ERISA § 101(a). See 29 U.S.C. §1021(a) (2000). One of the required items to be included in a summary plan description is the funding source for the plan. 29 C.F.R. § 2520.102-3(q) (2006).
86. See Am. Med. Sec., Inc. v. Barlett, 111 F.3d 358, 364 (4th Cir. 1997).
87. See, e.g., Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 747 (1985);
88. Jeffrey G. Lenhart, ERISA Preemption: The Effect of Stop-Loss Insurance on Self-Insured Health Plans, 14 VA. TAX REV. 615 (1995);
89. Paredes, supra note 66.
90. KAISER FAMILY FOUND. & HEALTH RESEARCH AND EDUC. TRUST, EMPLOYER HEALTH BENEFITS: 2005 ANNUAL SURVEY 109 exhibit 10.1, available at http://www.kff.org/insurance/7315/ upload/7315.pdf.
91. Sixty-six percent of nonelderly Americans are covered by nongovernmental health insurance and therefore potentially subject to state mandated benefit laws. See KAISER FAMILY FOUND., supra note 3, at 2 (reporting that 61% are covered by employer-sponsored plans and 5% are covered by individual insurance policies). Of this number, approximately half (or 33% of all nonelderly Americans) are exempt from state mandated benefit laws because their employer self-insures its benefit plan.
92. See Park, supra note 48. at 348.
93. One might argue that there is a fourth approach, a hybrid approach of the type found in the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Pub. L. No. 104-191, 110 Stat. 1936. Under that approach, federal law sets minimum standards that states are free to exceed by passing their own laws. I omit such an approach from my discussion because it appears to offer all of the burdens of two distinct levels of regulation, without offering benefits that cannot be achieved by either exclusive state regulation or exclusive federal regulation.
94. Specifically, this end-point would require repealing ERISA's "deemer" clause. For purposes of this article, I will assume that the deemer clause is repealed only as it applies to the substance of self-insured health plans. I will not consider or discuss whether self-insured health plans should be subject to broader state insurance regulation, such as requirements for financial reserves.
95. If risk pooling is a top priority, only a single payor system would provide an adequate solution. Our third party payor system will always segment risk to a certain degree.
96. See supra notes 48-52 and accompanying text.
97. Even if we compared exclusive state regulation to a system of positive federal regulation of mandated benefits, the state-based system would still have significantly higher compliance costs. Instead of having to satisfy one level of national regulation, health insurance purchasers would have to comply with as many as fifty different sets of state laws.
98. See Carol S. Weissert, Promise and Perils of State-Based Road to Universal Health Insurance in the U.S., 1J. HEALTH CARE L. & POL'Y 42, 42 (2004).
99. As discussed in this article, states would be limited to reform efforts centering on legislation that concerned the substance of health coverage. It would not open up self-insured plans to other types of state regulation, and therefore what states could accomplish would remain somewhat limited. For example, as part of the recently passed Massachusetts health care reform, employers who do not offer their employees health insurance might have to pay a fee to the state to help cover the health care costs of uninsured workers. See KAISER COMM'N ON MEDICAID AND THE UNINSURED, KEY FACTS, MASSACHUSETTS HEALTH CARE REFORM PLAN 1 (2006), http://www.kff.org/uninsured/ upload/7494.pdf. Under our current system of ERISA preemption, it is unclear to what extent these reforms will apply to employers and employer plans. The result would not change under the assumptions of this article, where ERISA preemption is repealed only to the extent it applies to the substance of self-insured health plans.
100. The other two end-points discussed, federal regulation and federal deregulation, also address the disparity between insured and self-insured plans that currently exists under ERISA.
101. Because small employers are least likely to self-insure their health plans, eliminating the preference for self-insurance would make small employers subject to the same regulations as all other employers. See KAISER FAMILY FOUND. & HEALTH RESEARCH AND EDUC. TRUST, supra note 75. Again, federal regulation and federal deregulation would also level the regulatory playing field between small and large employers by making all employers subject to the same regulation, regardless of funding decisions.
102. I am not suggesting that the business of insurance be entirely deregulated, just that the federal government take away the power of the states to mandate substantive provisions of health insurance contracts.
103. While insurance companies are likely to bear the brunt of the burden of technical compliance with individual state laws, having separate insurance contracts in different states does raise costs for multistate employers. For example, pursuant to ERISA an employer is required to furnish a summary plan description for each group health plan that it sponsors. See 29 U.S.C. § 1021(a) (2000). Multistate employers who offer insured health plan options will in most cases have to produce a separate summary plan description for each insured plan that it offers in a different state, in order to accurately communicate the mandated benefits required by each state.
104. Employers may purchase stop-loss insurance to protect themselves against the risk of loss associated with a self-insured health plans. See Paredes, supra note 66, at 248. While stop-loss coverage does provide the employer with some protection, the employer remains directly liable to plan participants for promised plan benefits. Id. at 250. If the stop-loss insurer becomes insolvent, the employer would remain liable for benefits.
105. See id.
106. See supra notes 44-58 and accompanying text for a discussion of how the current system of mandated benefit regulation distorts the decision to insure or self-insure a plan.
107. See KAISER FAMILY FOUND. & HEALTH RESEARCH AND EDUC. TRUST, supra note 75.
108. Id.
109. Id. at 35 exhibit 2.2.
110. It is clear that cost is a principal driver of the decision by small employers whether to offer health insurance. See id. at 37 exhibit 2.6. What is less clear is the extent to which mandated benefit laws affect either the cost of coverage to small employers or their decision to offer health insurance. See, e.g.. U.S. GEN. ACCOUNTING OFFICE, supra note 5, at 15.
111. See Fronstin et al., supra note 32. at 15.
112. Employers are not always motivated principally by low premium costs. The interests of employers who purchase insurance are not always identical or even similar to the interests of the employees who are covered by such insurance. See Hyman & Hall, supra note 38, at 26-27. If price is an employer's sole motivator (or if the employer believes that price is the most important factor to its employees), the employer would likely seek to purchase a bare bones policy. However, employee demand (or market pressure) may lead employers to offer more generous coverage than that provided by the lowest cost policy. At least one study has shown that most employers who self-insure their health plans offer all of the benefits mandated by their state of residence, even though they are under no legal obligation to do so. U.S. GEN. ACCOUNTING OFFICE, supra note 5, at 15. One might use this fact to argue that deregulation would not create negative results, since employers tend to offer the mandated benefits even when they are not legally obligated to do so. However, it is not clear that employers would continue to offer the benefits under a deregulated system. It is possible, after all, that self-insured plans offer mandated benefits because of market pressures created by the mandated benefit laws (i.e., employers with self-insured plans offer the benefits because they must compete against employers with insured plans that are required to include the benefits).
113. Some argue that propitious selection reduces or eliminates the problem of adverse selection. The theory of propitious selection posits that high-risk individuals are precisely those who do not want to buy insurance; "the same attitudes that lead them to take risks in the first place give them little reason to insure against such risks." Siegelman, supra note 21, at 1266. "[I]nsurance is most attractive to the most risk-averse individuals among those eligible to buy it, not those with the highest tolerance for risk." Id. The same attitudes that lead these individuals to be risk averse in other behaviors is thought to lead them to value insurance highly. While this theory may hold true in certain insurance markets, it likely has little impact in the health insurance context, because many conditions that qualify an individual as high risk from a health insurance perspective are completely unrelated to risky behavior generally.
114. See supra Part I.A.2.
115. For a wonderful example of how purchasing decisions would be made under a deregulated system, and why such decisions would undermine risk pooling, see David R. Henderson, Terminatorcare, WALL ST. J., Jan. 10, 2007, at A17. In advocating for deregulation, Mr. Henderson states, "[w]ere I in the market for individual insurance and given the choice, I would not bother paying for coverage for alcohol or drug abuse."
116. While there do not appear to be any studies of employer decision making in this context, my personal experience as counsel to employers of varying size in designing employee medical plans is that their decision-making processes vary tremendously, and with it the possibility of having decisions affected by cognitive biases. The largest employers tended to engage sophisticated human resources consultants who analyzed the employer's health care claims in detail and provided cost-benefit analyses of various coverages. Such efforts would seem to counteract any of the cognitive biases discussed below. However, the smallest employers tended to either (1) trust the insurance company to advise them on what to cover or not cover or (2) rely on an in-house human resources professional to make such determinations without any special training or data analyses. These employers would seem to be the most susceptible to cognitive biases.
117. Of course, right now there is great potential for inefficiency because there is no choice. Mandated benefits may prevent an individual from selecting an efficient level of insurance by failing to allow the individual to satisfy her preferences for coverage.
118. Siegelman, supra note 21, at 1243.
119. Id. at 1244. One study found that individuals were reasonably good at predicting how long they would live. Id. However, a more recent study found that there was a rather weak relationship between self-perceived and actual risk of death. Id.
120. Id. at 1245. For example, an individual may know that he is overweight and has high blood pressure, but may be unable to translate that knowledge accurately into an assessment of his risk for developing heart disease.
121. JUDITH H. HIBBARD ET AL., DECISION MAKING IN CONSUMER-DIRECTED HEALTH PLANS 5 (2003), available at http://assets.aarp.org/rgcenter/health/2003_05_cdp. pdf.
122. Id.
123. One study has found that adults disproportionately reported that their personal risk of developing drug addition was "below average." Neil D. Weinstein, Optimistic Biases About Personal Risks, 246 SCIENCE 1232, 1232 (1989). The same study also found that adults disproportionately reported that their personal risk of developing asthma, food poisoning, influenza, lung cancer and pneumonia was similarly "below average." This is consistent with the theory of optimism bias, in that substance abuse is judged to be controllable by personal action.
124. See, e.g., Paul Slovic et al., Facts Versus Fears: Understanding Perceived Risk, in JUDGMENT UNDER UNCERTAINTY: HEURISTICS AND BIASES 463, 465-72 (Daniel Kahneman et al. eds., 1982).
125. Amos Tversky & Daniel Kahneman, Availability: A Heuristic for Judging Frequency and Probability, in JUDGMENT UNDER UNCERTAINTY: HEURISTICS AND BIASES, supra note 108, at 163, 164 ("A person is said to employ the availability heuristic whenever he estimates frequency or probability by the ease with which instances or associations could be brought to mind.").
126. Paul Slovic et al., supra note 108, at 465.
127. Id.; see also Amos Tversky & Daniel Kahneman, Judgment Under Uncertainty: Heuristics and Biases, in JUDGMENT UNDER UNCERTAINTY: HEURISTICS AND BIASES, supra note 108, at 3, 11.
128. Paul Slovic et al., supra note 108, at 466-67.
129. Id.
130. To complicate matters further, it is likely that insurance companies will have data on those benefits that individuals irrationally overconsume, and perhaps prices those benefits accordingly.
131. See supra note 28.
132. See U.S. GEN. ACCOUNTING OFFICE, supra note 5, at 14.
133. Gail A. Jensen & Michael A. Morrisey, Employer-Sponsored Health Insurance and Mandated Benefit Laws, 11 MILBANK Q. 425, 444-45 (1999) (citing Acs et al., Employers' Payroll and Insurance Costs: Implications for Play or Pay Employer Mandates, in HEALTH BENEFITS AND THE WORKFORCE (1992)).
134. See TEX. DEP'T OF INS., supra note 18, at 16.
135. JOHN C. GOODMAN & GERALD L. MUSGRAVE, FREEDOM OF CHOICE IN HEALTH INSURANCE 20 (Nat'l Center for Policy Analysis 1988).
136. Gruber, supra note 17, at 27.
137. Michael Chernew et al., The Demand for Health Insurance Coverage by Low-Income Workers: Can Reduced Premiums Achieve Full Coverage?, 32 HEALTH SERVICES RES. 453, 453 (1997). In a study of low-income workers at small firms with no other source of health insurance coverage, premium subsidies of 75% only increased participation rates from 89% to 92.6%. Id. at 464. The authors note, "[although the overwhelming majority of individuals participate in their employer's plan, there appears to be a subset who do not, even at prices heavily distorted by the employer. For this group of workers, it is unlikely that a further subsidy would alter participation dramatically." Id.
138. Id. at 461.
139. Fronstin et al., supra note 32, at 15. The survey reported that 34% of employers not currently offering health insurance were "somewhat more likely" to seriously consider offering a plan if costs fell ten percent, while 55% were "no more likely" to seriously consider offering a plan. Id.
140. ROBERT NOZICK, ANARCHY, STATE, AND UTOPIA 33 (1974).
141. While it is true that studies suggest that health insurance costs would need to decrease substantially in order for take-up rates to increase (i.e., decrease much more than the savings that would be achieved by eliminating mandated benefits), there will be a certain number of individuals at the margin for whom mandated benefits means the difference between being able to afford health insurance or going without coverage.
142. The fact that an individual does not know what his or her future health care needs will be is irrelevant. The argument about individual sacrifice has to do with the freedom to enter into a contract that protects against only those risks the individual selects. That is, an individual should be free to choose which unknown risks to insure against. As David Hyman has observed, "[a]fter illness strikes ... behavior would have been different 'had they only known'-including their willingness to have paid higher premiums to secure coverage. Ex ante, willingness to pay is not nearly so apparent." David A. Hyman, Regulating Managed Care: What's Wrong with a Patient Bill of Rights, 73 S. CAL. L. REV. 221, 235 (2000).
143. See, e.g., David A. Hyman, Drive-Through Deliveries: Is "Consumer Protection" Just What the Doctor Ordered?, 78 N.C. L. REV. 5, 13 (1999) ("Legislative mandates can reallocate resources within the common pool, but new or enhanced services are covered at the expense of other services, increased premiums, or both. In short, you don't get something for nothing ....").
144. This would almost certainly be true in the individual insurance market. Those who receive coverage through their employer would still be faced with the pooling of health risks. However, given the subsidies that employers typically provide to employees for the purchase of health insurance, it is likely that individuals still come out ahead (the increased cost of risk pooling for low risk individuals is likely less than the amount of the employer subsidy for coverage).
145. See John V. Jacobi, The Ends of Health Insurance, 30 U.C. DAVIS L. REV. 311, 313-14 (1997) (stating that the passage of the Health Insurance Portability and Accountability Act of 1996 had swung the balance "toward a vision of health insurance as mutual assistance, and away from individual accountability").
146. Id. at 312. Professor Jacobi goes on to point out that, "in the United States [health insurance] has also come to mean 'a person's self-centered calculations to protect himself against loss.'" Id. (citing WILLIAM A. GLASER, HEALTH INSURANCE IN PRACTICE: INTERNATIONAL VARIATIONS IN FINANCING, BENEFITS, AND PROBLEMS 14 (1991)). This model of health insurance appears to be the one being pursued by advocates of deregulation.
147. See David A. Super, The New Moralizers: Transforming the Conservative Legal Agenda, 104 COLUM. L. REV. 2032, 2063 (2004).
148. While federal laws such as the American with Disabilities Act (ADA) and the Health Insurance Portability and Accountability Act (HIPAA) help protect high-risk insurance purchasers, these protections do not address fundamental areas of concern that would be present in the absence of mandated benefits, such as adverse selection and plan design that omits certain benefits. See COLLEEN E. MEDILL, INTRODUCTION TO EMPLOYEE BENEFITS LAW: POLICY AND PRACTICE 316-25, 338-41 (2004), for a general discussion of HIPAA and ADA provisions as they apply to group health insurance.
149. Kirk J. Stark, Fiscal Federalism and Tax Progressivity: Should the Federal Income Tax Encourage State and Local Redistribution?, 51 UCLA L. REV. 1389, 1390 (2004).
150. To date, no one has seriously proposed increasing the role of the federal government in this manner. Even when national health insurance was being seriously considered during the Clinton administration, reform proposals all relied on significant state government involvement. See Candice Hoke, Constitutional Impediments to National Health Reform: Tenth Amendment and Spending Clause Hurdles, 21 HASTINGS CONST. L.Q. 489, 500 (1994).
151. 322 U.S. 533 (1944).
152. Id. at 552-53.
153. 15 U.S.C. § 1011(2000).
154. Approximately fifty-four percent of those with employer-provided coverage are covered by self-insured plans. See supra note 75 and accompanying text.
155. KAISER FAMILY FOUND. & HEALTH RESEARCH AND EDUC. TRUST, supra note 75 (finding only 13% of workers in small firms (3-199 workers) were covered by a self-insured plan, compared with 53% in midsize firms, 78% in large firms, and 82% in jumbo firms).
156. As Professor Medill has pointed out, "ERISA is the most obvious and most convenient mechanism for Congress to enact future federal health care reforms." Medill, supra note 54, at 508. Enacting reform through ERISA would ensure that every employer-sponsored group health plan would be affected, which would cover the vast majority of the privately insured population. However, stand-alone federal legislation could also be passed in order to cover individually purchased insurance contracts.
157. Larry E. Ribstein & Bruce Kobayashi, The Economics of Federalism, in ECONOMIC APPROACHES TO THE LAW (Larry E. Ribstein & Bruce Kobayashi eds., forthcoming) (manuscript at 3).
158. Id. at 4.
159. Indeed, states may be particularly hesitant to enact mandates that would be attractive to "sick" individuals, particularly if neighboring states do not have such mandates in place.
160. One cycle of in vitro fertilization costs between $10,000 and $15,000. The cost per live birth is significantly higher. One study found that the cost per live birth with the use of assisted reproductive technology in 1993 was nearly $60,000. Martha Griffin & William F. Panak, The Economic Cost of Infertility-Related Services: An Examination of the Massachusetts Infertility Insurance Mandate, 70 FERTILITY & STERILITY 22, 26 (1998).
161. One could argue that while the federal government does not face the same jurisdictional competition pressures that the states do, benefits at the federal level may cause employers to consider moving U.S. jobs overseas. If benefits are mandated at the federal level, such that all employers must include such mandates in their health plans, and such mandates raise the price of coverage, employers may consider whether it is economically more attractive to move jobs overseas. I am unpersuaded by such an argument. First, even if one assumes that benefit mandates significantly raise the cost of health coverage, the decision of an employer to offer health insurance to its employees remains voluntary. An employer could choose not to offer such coverage if the mandates become too burdensome. In addition, employers are free to pass some or all of the cost of coverage along to their workers.
162. See Katherine M. Jones, Law, Politics, and the Political Safeguards of Federalism: The Case of Insurance Regulation and the Commerce Clause, 1938-1948, 11 CONN. INS. L.J. 345, 393 (2005).
163. For example, the American Diabetes Association has been active in lobbying forty-six state governments to pass diabetes coverage mandates and is still actively working to secure such legislation in the four states that do not have such mandates. See The Health Care Choice Act: Hearing on H.R. 2355 Before the Subcomm. on Health of the H. Comm. on Energy and Commerce, 109th Cong. 35-36 (2005) (statement of L. Hunter Limbaugh). Allowing such groups to focus their lobbying at a single, national level should reduce lobbying costs. However, the state legislative process usually draws less media attention and enjoys lower visibility than the federal counterpart. This lowered scrutiny of the state legislative process may make it quicker or cheaper to lobby at the state level.
164. As previously mentioned, it is not necessarily true that individuals will bear the same cost for the mandated benefit, since state laws differ in the extent to which insurers can take into account an individual's likely risk. However, mandated benefit laws nevertheless encourage risk spreading by taking away from the insurance company an important source of information regarding individual risk (the request for a benefit-specific rider).
165. This argument assumes that the only state insurance regulation that is being superseded is state regulation of the mandated health benefit laws. It assumes that states retain the general ability to regulate the business of insurance. Because each state would still license insurers and impose regulatory restrictions on insurers (such as pricing controls, guaranteed issue requirements, etc.), risk pools would still be formed at the state level. The result could be changed, however, if all state insurance law was preempted by federal-level regulation. In that case, a federal-level risk pool could be achieved.
166. It may nonetheless increase risk spreading to the extent that a plan now covers a mandated benefit for the first time. For example, if a self-insured plan that did not offer diabetes benefits now does so, the diabetes risk will now be spread among participants in that plan.
167. It is possible that mandating benefits at the federal level will lead to fewer employers choosing to self-insure their health plans, since it would take away one of the primary benefits of self-insurance. If employers move away from self-insurance in sufficient numbers and begin to insure their health plans, risk pools could very well widen. This outcome is, of course, purely speculative at this point.
168. To maximize risk spreading, a federal-level risk pool would need to be created by using a single payor system. In our existing third-party payor system, risk pooling will never be maximized, regardless of how mandated benefits are regulated.
169. See Mark V. Pauly, Income Redistribution as a Local Public Good, 2 J. PUB. ECON. 35, 37 (1973).
170. Id. at 37-38.
171. Id. at 37.
172. Lior Jacob Strahilevitz, The Uneasy Case for Devolution of the Individual Income Tax, 85 IOWA L. REV. 907, 957 (2000).
173. Pauly, supra note 153, at 37-38.
174. See, e.g., Jacques LeBoeuf, The Economics of Federalism and the Proper Scope of the Federal Commerce Power, 31 SAN DIEGO L. REV. 555, 580 (1994) (stating that "benefits derived from redistribution decrease as the geographic area over which the redistribution is affected increases").
175. See supra notes 56-59 and accompanying text.
176. See Weissert, supra note 83, at 66.
177. Support might be difficult because of the spatial component of utility interdependence previously mentioned or because Congress and the states currently have overlapping jurisdiction in the area.
178. Not everyone would view this as an undesired result. Many commentators believe that states have been too quick to mandate benefits and that they do so without sufficient reflection. A regulatory system that makes it more difficult to pass mandated benefits may therefore be desired.
179. See William J. Carney, The Production of Corporate Law, 71 S. CAL. L. REV. 715, 757 (1998).
180. See Daniel C. Esty, Revitalizing Environmental Federalism, 95 MICH. L. REV. 570, 611 (1996) (arguing that decentralization counters rent seeking).
181. See Weissert, supra note 83, at 42. For example, it was states that first developed that idea of mandated health insurance benefits to address perceived shortcomings in the health insurance market.
182. Id. at 46.
183. In approximately half of all states, citizens can propose legislation or constitutional amendments. Id. at 48.
184. And in nearly half of all states citizens are offered the popular voter referendum where citizens can vote to accept or reject legislation already passed. Id.
185. In terms of preferences, the citizens of a given state have more homogeneous preferences than the nation as a whole. Id. at 49.
186. A uniform federal policy is more likely to make a "significant number of persons with differing tastes in different states unhappy." Id.
187. While some believe that individuals have a greater impact on local political action than on federal legislation (where individual votes are more diluted), others question whether individuals acting as such have much political impact. Compare Eric J. Gouvin, Radical Tax Reform, Municipal Finance, and the Conservative Agenda, 56 RUTGERS L. REV. 409, 458 (2004)
188. (citing Gerald E. Frug, Empowering Cities in a Federal System, 19 URBAN LAW. 553 (1987))
189. with Elizabeth Garrett, Money, Agenda Setting, and Direct Democracy, 11 TEX. L. REV. 1845, 1863 (1999) ("Any political process is largely the domain of organizations; politics is not an environment where individuals acting alone often can have much impact.").
190. See Weissert, supra note 83, at 49-50.
191. Id. at 47.
192. See Hyman, supra note 126, at 245-46.
193. Id. at 246.
194. Id.
195. Comparing an insured plan with a self-insured plan that purchases stop-loss insurance, even the difference in funding mechanism is very slight. While an insured plan purchases insurance to pay benefits directly to plan participants, a self-insured plan with stop-loss coverage purchases insurance that reimburses the plan sponsor for the benefits it pays to plan participants.
196. Of course, individuals also have different health care rights based on their state of residence. This section will not address this inequality because we seem willing to accept such jurisdictional differences in the law given that those differences are affected by the "bargain" struck between state residents and their representatives on a wide variety of topics (for example, residents of state X may have fewer mandated benefits than state Y). but also lower taxes than state Y).
197. See, e.g., JAMES RACHELS, THE ELEMENTS OF MORAL PHILOSOPHY (MCG RAW-HILL 4th ed. 2003) (stating that an ethical theory based on a morally arbitrary distinction is unacceptable);
198. Anthony Flew, Three Concepts of Racism, LXXV ENCOUNTER 63, 63 (1990) (arguing that racism is unjust because it treats differently persons who "are in all relevant respects the same").
199. Flew, supra note 174, at 63 (emphasis added). One might argue that the individual with lesser coverage paid a premium that reflected the lesser coverage and, therefore, the individuals are not in all relevant respects the same. However, while the individuals may have been treated fairly from an economic perspective, they have not been treated fairly in terms of access to coverage. The individual whose employer chooses to insure health plan benefits gets not only access to the mandated benefit, but also the risk-spreading associated with that coverage. While the individual whose employer self-insures might pay a lower price for coverage because certain mandated benefits are not included, that individual may not have the ability to use that cost savings to purchase the desired supplemental coverage on the individual market because the risk spreading aspect of mandated benefits will not apply, causing the price for individual supplemental coverage to be much higher than inclusion in a group policy through the application of state law.
200. See KAISER FAMILY FOUND. & HEALTH RESEARCH AND EDUC. TRUST, supra note 75.
201. See id. (stating that eighty-two percent of the largest firms self-insured their health plans in 2005).
202. This is, of course, only one of many advantages enjoyed by large employers in the health care context. Small employers would still face higher relative costs because of their smaller risk pools and limited bargaining power.
203. The qualifier "at least in part" is used because federally mandated benefits would not address all of the inequality or unfairness present in our nonuniversal health care system.
204. None of the options would, however, put the individuals in the same position they would have been in had their employers been subject to the state mandated benefit laws. While individuals could purchase individual health insurance policies, they would have to do so without the benefit of the generous tax subsidy provided to employer-sponsored coverage.
205. As stated earlier, it may be easier for interest groups to secure rents at the state level, but there is less incentive to seek such rents in the first place, due to the limited reach of state laws. See discussion supra Part II.C.2.C.
206. A counter argument could be made that this is not a preferable outcome if it results in lower coverage rates due to increased cost. I agree that such an outcome would be cause for significant concern. However, under a regulatory system that applies equally to all, there should be greater incentive for both Congress and large employers to lobby for change (that is, if federal mandates are adversely affecting coverage rates, the big players should be incentivized to take political action to lessen the regulatory burden). Under our current system, the most powerful players (large employers) have no reason to engage in the state mandated benefit debate.
207. Of course, small employers in many states would still face less favorable premiums than larger employers, but unequal regulation would no longer contribute to the price differential.
208. Pub. L. No. 108-173, § 1201, 117 Stat. 2066, 2469 (2003) (codified as I.R.C. § 223).
209. See Cato Inst., The Ownership Society and Health Care, http://www.cato.org/cgi-bin/scripts/printtech.cgi/special/ownership_society/ healthcare.html (last visited Feb. 27, 2007).
210. I.R.C. § 223(c) (West Supp. 2006).
211. Id. § 223(c)(2).
212. These amounts are indexed for inflation. For 2006, the minimum deductibles are $1050 for individual coverage and $2100 for family coverage, with respective out-of-pocket maximums of $5250 and $10,500. Rev. Proc. 2005-70, 2005-47 I.R.B. 979.
213. I.R.C. § 223(c)(2)(C).
214. See I.R.S. Notice 2004-43, 2004-27 I.R.B. 10.
215. See id.
216. Id.
217. New York allows high-deductible health plans to be offered to group purchasers, but state law continues to prohibit such plans from being offered on the individual market. Individual plans are required to include a maximum deductible of $1000 per individual and $2000 per family, a twenty percent coinsurance amount, no deductible for home health care services, and an out-of-pocket maximum of $3000 per individual and $5000 per family. N.Y. INS. LAW §§3216, 4304 (McKinney 2006);
218. see also id. §4322.
219. ARIZ. REV. STAT. ANN. § 20-826.02 (Supp. 2006).
220. CONN. GEN. STAT. ANN. §§38a-493(f), 38a-520(f) (West Supp. 2006) (requiring that for other insurance policies, home health care may not be subjected to a deductible greater than $50 per person covered and may not have a coinsurance level less than 75% of the reasonable charges).
221. FLA. STAT. ANN. §627.413 (West Supp. 2006) (amending FLA. STAT. ANN. §624.128).
222. KAN. STAT. ANN. §40-2,105 (2000) (as amended by H.B. 2545). Current law requires all other health insurance policies to provide outpatient treatment of alcoholism, drug abuse and nervous or mental conditions at levels not less than 100% of the first $100, 80% of the next $100 and 50% of the next $1640 in any year and limited to not less than $7,500 in such person's lifetime. Id.
223. MD. CODEANN., INS. § 15-812(g)(2) (LexisNexis 2006).
224. N.J. STAT. ANN. § 17:48E-35.27 (West 2006).
225. Id. § 17:48E-35.28.
226. N.D. CENT. CODE §§ 26.1-36-08(2)(d), 26.1-36-09(f)(4) (2005). Prior law prohibited requiring a deductible or copayment for the first five substance abuse treatments in a calendar year, and prohibited a copayment greater than 20% for remaining visits. Similarly, insurance companies were not permitted to establish a deductible or copayment for the first five hours of mental disorder treatment, nor impose a copayment of greater than 20% for remaining hours.
227. OHIO REV. CODE ANN. § 1751.12 (LexisNexis 2005).
228. OKLA. STAT. ANN. tit. 36, §§ 7002-7003 (West Supp. 2007).
229. 72 PA. STAT. ANN. § 3402b.5 (West Supp. 2007). Among other things, this law change eliminates the requirement that insurers provide coverage for at least one home health visit for new mothers who are discharged from the hospital less than 48 hours following a normal delivery or 96 hours after a Caesarean delivery. It also changes required coverage of medical foods for the treatment of several health conditions.
230. R.I. GEN. LAWS 27-69-3 (Supp. 2006) (as amended by HB 5228).
231. Id.
232. VA. CODEANN. § 38.2-5602.1 (Supp. 2006).
233. Timothy S. Jost & Mark A. Hall, The Role of State Regulation in Consumer-Driven Health Care, 31 AM. J.L. & MED. 395, 404 (2005).
234. "The few states that have refused so far to jump on the bandwagon have principled reservations about consumer-directed health care that are appropriately respected by this more passive federal approach. Thus in the end, the MMA seems a very promising model of incentive-based federalism in health insurance regulation." Id. at 416.
235. At the time the article by Professors Jost and Hall was written, New Jersey had not yet amended its laws to allow high-deductible health plans to be offered. They found that New Jersey had failed to amend its laws due, at least in part, to political opposition to federal health policy. Id. at 405. New Jersey has obviously overcome this opposition, although its legislative response did include a requirement that high-deductible health plans cover all medically necessary preventive services without imposing a deductible.
236. There is obviously only an incentive to the extent that state mandated benefit laws conflict with the offering of a high deductible health plan. Many state mandated benefit laws do not conflict with high deductible health plans because such mandates do not prevent a deductible from being applied to the benefit.
237. See, e.g., Patients' Health Care Reform Act, H.R. 2203, 109th Cong. § 801 (2005);
238. Promoting Health Care Purchasing Cooperative Act, S. 820, 109th Cong. (2005);
239. Small Business Health Fairness Act of 2005, S. 406, 109th Cong. § 801 (2005).
240. U.S. DEP'T OF LABOR, ASSOCIATION HEALTH PLANS: IMPROVING ACCESS TO AFFORDABLE QUALITY HEALTH CARE FOR SMALL BUSINESS 2 (2002).
241. 29 U.S.CA. § 1002(40)(A) (West 2006).
242. Id. § 1144(b)(6).
243. MEWAs must comply with, among other things, state mandated benefit laws and premium pricing requirements. CONG. BUDGET OFFICE, INCREASING SMALL-FIRM HEALTH INSURANCE COVERAGE THROUGH ASSOCIATION HEALTH PLANS AND HEALTHMARTS 9 (2000), available at http://www.cbo.gov/ftpdocs/18xx/doc1815/healthins. pdf.
244. U.S. GEN. ACCOUNTING OFFICE, GAO/HRD-92-40, EMPLOYEE BENEFITS: STATES NEED LABOR'S HELP REGULATING MULTIPLE EMPLOYER WELFARE ARRANGEMENTS 2 (1992), available at http://archive.gao.gov/t2pbat6/146055.pdf.
245. See Small Business Health Fairness Act of 2005, H.R. 525, 109th Cong. (2005).
246. U.S. DEP'T OF LABOR, supra note 210, at 2.
247. Id. (emphasis added).
248. Id. at 8.
249. Id. at 1.
250. Id. at 9.
251. Indeed, AHPs depend on the absence of mandates, and the ability to offer bare bones coverage, for a significant part of the cost savings they provide. See CONG. BUDGET OFFICE, supra note 213, at 17.
252. See id. at 13 (stating that AHPs would give low-cost firms access to lower premiums, while causing some high-cost firms to face higher premiums).
253. In 2000, the Congressional Budget Office estimated that the introduction of AHPs and HealthMarts together would result in premiums that were on average 13% lower than those in the existing small group market. Id. at 16.
254. The exemption from benefit mandates and the efficiency of group purchasing accounted for a 5% decrease, while an 8% decrease was attributed to the better-than-average risk profile of the purchasers and the avoidance of state premium controls. Id. at 17.
255. However, even with these assumed cost savings, only 330,000 individuals were expected to gain coverage as a result, and such figure represents new coverage resulting from both AHPs and HealthMarts. Id. at 14.
256. The current regulation of health insurance has been characterized as federal deference to state legislation. Jost & Hall, supra note 207, at 398. As discussed earlier, ERISA's preemption scheme also shows deference to the ability of states to regulation the business of insurance. See id. at 398.
257. Health Care Choice Act of 2005, H.R. 2355, 109th Cong. (2005).
258. Id.
259. CONG. BUDGETOFFICE, COST ESTIMATE, H.R. 2355: HEALTH CARE CHOICE ACT OF 2005, at 3 (2005).
260. There would also be cost decreases available to certain individuals as a result of being able to avoid unwanted state insurance pricing regulations. Nevertheless, this article is intentionally limited to a discussion of mandated benefit laws.
261. It also potentially allows individuals to get their preferred mix of mandated benefits and health insurance premium costs without changing employers (i.e., an individual could elect to forgo a plan offered by her employer and purchase an individual policy closely tailored to her needs). However, this argument fails to take into account the generous tax subsidies (and often employer subsidies) that are provided for employer-sponsored plans. See Amy B. Monahan, The Promise and Peril of Ownership Society Health Care Policy, 80 TUL. L. REV. 777, 782-86 (2006). As a result, it is unlikely that an individual would forgo employer-sponsored coverage in order to purchase unsubsidized insurance in a freer market.
262. This freedom and choice is often presented as a good in its own right. See, e.g., The Health Care Choice Act: Hearing on H.R. 2355 Before the Subcomm. on Health of the H. Committee on Energy and Commerce, supra note 147, at 2, 53, 58.
263. See generally Super, supra note 131, at 2050;
264. Edward A. Zelinsky, The Defined Contribution Paradigm, 114 YALE L.J. 451 (2004).
265. See KAISER FAMILY FOUND., supra note 35;
266. KEN MCDONNELL ET AL., EBRI DATABOOK ON EMPLOYEE BENEFITS, tbl.10.6 (2005), available at http://www.ebri.org/pdf/publications/databook/DB.Chapter%2010.pdf.
267. For much of the 20th century, defined-benefit plans (what are commonly referred to as traditional pension plans) were the dominant means of private retirement savings. These plans were (and are) heavily regulated and place the risk of loss on the plan sponsor, rather than the individual participant. See Amy B. Monahan, Addressing the Problem of Impatients, Impulsives and Other Imperfect Actors in 401 (k) Plans, 23 VA. TAX REV. 471, 475-76 (2004).
268. See id. at 476-79. There have also been efforts to move the social security system in the same direction, allowing for individual 401(k)-style savings accounts in lieu of at least part of the currently guaranteed government benefit.
269. See id. at 473.
270. See Super, supra note 131, at 2062.
271. See id.
272. While association health plan proposals do not explicitly embrace individual choice, they do allow health care purchasers to avoid state insurance law at their discretion.
273. See John V. Jacobi, Consumer-Directed Health Care and The Chronically III, 38 U. MICH. J.L. REFORM 531, 577 (2005) (stating that requiring the chronically ill "to go through the exercise each year of spending through their deductible amount is nothing more than a tax on the sick-a transfer of cost from sponsors and the general insured pool to the chronically ill").
274. As David Super points out, "The moral argument presenting uninsuredness as blameworthy is far easier to digest" than arguments about market conditions that make healthcare coverage less available to low-income people and those with serious illnesses. Super, supra note 131, at 2065.
275. See Monahan, supra note 228, at 814-18.
276. The Congressional Budget Office cost estimate for the Health Care Choice Act predicts as much: For most people in a secondary state, the price of individual health insurance coverage offered by an insurer licensed in a primary state would be lower than the price under current law of individual coverage offered by an insurer licensed by their state. Conversely, individual health insurance coverage from out-of-state insurers either would not be offered to people expected to have relatively high health care costs, or it would be offered at a price that is higher than the price under current law of individual coverage offered by an insurer licensed by their state. The shift of individuals expected to have relatively low health care costs to out-of-state insurance coverage would increase the price of coverage offered by insurers licensed in-state, and could lead to erosion of the availability of such coverage by insurers located in secondary states. CONG. BUDGET OFFICE, supra note 226, at 4. It is also possible that low-mandate states will attract individuals with a range of risk profiles, due to individuals' problems with accurate risk assessment.
277. Other examples of state competition, such as among state usury laws, may provide a helpful analogy. After the Supreme Court held in Marquette National Bank v. First of Omaha Service Corp., 439 U.S. 299 (1978), that a national bank could charge credit card interest according to the state's laws where the bank is located (rather than the customer's state of residence), there was a rapid move by banks to states with very high or no interest rate ceilings. Todd J. Zywicki, The Economics of Credit Cards, 3 CHAP. L. REV. 79, 146 (2000).
278. See CONG. BUDGET OFFICE, supra note 226, at 4.
279. While they may be able to purchase the necessary coverage by paying a premium commensurate with their risk, it is likely due to adverse selection issues previously discussed that they would find such coverage unaffordable. See id. at 7 ("H.R. 2355 would reduce the price of individual health insurance coverage for people expected to have relatively low health care costs, while increasing the price of coverage for those expected to have high health care costs. Therefore, CBO expects . . . a decrease in the number of individuals expected to have relatively high cost, who buy individual coverage.").
280. TEX. DEP'T OF INS., supra note 18, at 14.
281. In a state without pricing controls, the benefit would be priced based on the theory of adverse selection - that those who seek out a policy in a state with a substance abuse mandate have reason to believe that they will utilize such benefits. If the state has pricing controls that make it difficult for insurers to operate profitably in the face of adverse selection, insurers will simply exit the market and cease offering policies in that state.
282. CONG. BUDGET OFFICE, supra note 226, at 4.
283. The CBO assumes that some employers (particularly smaller ones) would stop offering employee health coverage due to the improvements in the individual market. Id. at 5.
284. In addition, some individuals who currently receive employer-sponsored coverage will choose instead to purchase individual health insurance coverage through an out-of-state insurer. Id.
285. That would increase the per capita cost of the employer's health plan, and is therefore expected to result in additional employers dropping coverage. Id.
286. Id. at 7.
287. Id.
288. Id.
289. Some have expressed skepticism that merely reducing costs will be sufficient to materially increase rates of coverage, because for many Americans the cost of health insurance would have to drop dramatically for the purchase of insurance to become either attractive or possible. See, e.g., Jacobi, supra note 129, at 402-03 (suggesting that positive funding would be necessary to increase coverage rates, given the high-cost coverage).
290. There are plenty of examples of governmental programs to deal with high-risk insurance purchasers, such as existing state health insurance high-risk pools and the federal flood insurance program.
291. I leave to a future article a discussion of the specifics of the legislative process that should be involved in mandating benefits at the federal level, what types of evidence should be sufficient to support a mandate, and what benefits (if any) might meet such requirements.
292. President Bush has proposed eliminating the exclusion of employer-provided health insurance from taxable income and in its place offering a standard deduction for health insurance. See Press Release, White House Office of the Press Secretary, Fact Sheet: Affordable, Accessible, and Flexible Health Coverage (Jan. 22, 2007), available at http://www.whitehouse.gov/news/releases/2007/01/20070122-3.html.