Friday, November 20, 2009

Howard: The Medicaid Monster

In a recent issue of City Journal, Paul Howard describes how a combination of perverse funding formulas, political corruption, regulations on private insurance, and entitlement mentality have driven up New York state's Medicaid costs.

In particular, he describes some of the controls placed on the private insurance market:
Why is private health insurance so expensive? Blame Albany. First, state lawmakers have mandated that all health plans cover a host of procedures and "alternative-medicine" services, far more than companies in most states offer. Even the most stripped-down plan must include coverage of off-label drugs, surgical second opinions, and midwife and podiatrist services. Each mandated benefit makes the policy more expensive. Two state insurance regulations -- "guaranteed issue," which forces insurers to sell to any applicant, and "community rating," which requires them to offer the same price to everyone, regardless of age and health -- inflate prices further. Finally, the state has added billions of dollars in taxes and fees to private insurance policies, making them even pricier.

The perverse result: the young, healthy, and self-employed -- facing higher premiums for insurance that they seldom use, and realizing that they can always wait until they become ill to buy insurance -- tend to drop their coverage. (If New York regulated home insurance like this, you could buy a policy after your house had caught fire.) What's left is an insurance pool of older, sicker people, which drives private premiums higher still. Worse, the large number of uninsured people -- a consequence of Albany's bad policies—then becomes a justification for expanding the Medicaid rolls.
(Read the full text of "The Medicaid Monster".)

Despite the fact that such bad laws have driven up the price of insurance in New York (and in other states such as Massachusetts and New Jersey), these laws are being proposed at national level.

That's a recipe for disaster.

(Note: I agree with some but not all of his proposed reforms. In my opinion, he moves partially in the direction of free market reforms, but could go further.)