Shocking News! State Mandates Increase the Cost of Health Insurance!

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Researchers at Brigham Young University, the National Bureau of Economic Research and the Brookings Institution have found that health insurance mandates raise the price for everybody. As the press release describing the study explains:

New research shows that the cost of health insurance for a typical family increases about $100 per month when state governments limit price adjustments based on factors like age, health or risky behaviors such as smoking.

The finding by Brigham Young University economist Mark Showalter is one of several examples of how one state's set of rules can result in widely different prices than what's found in the state next door. Perhaps the most eye-opening contrast exists in Trenton, New Jersey, where premiums cost about twice as much as those sold across the Delaware River in Pennsylvania…

Seven states prevent insurers from adjusting prices based on one or more factors like age, health status or risky behavior. The researchers found such rules - known as community ratings - increased family premiums between 21 and 33 percent.

The rule is intended to promote equity but may consequently make insurance too expensive for healthy people. The study found New Jersey's strict form of community ratings responsible for premiums set two to three times higher than if the requirement were not in place.

Who knew that 1,800 nearly 2,000 federal and state mandates would boost the price of health insurance? Well, actually, lots of analysts do. For example, Harvard business school professor Regina Herzlinger told reason: 

"It's like I'm shopping for a car and my state mandates that all cars have heated seats," says Herzlinger. Car buyers would not long stand for a heated car seat mandate that raises the price of a car by $1,000, and similarly individual health insurance shoppers would object to unnecessarily expensive insurance mandates.

It is very likely that legislators rarely consider the costs of such mandates to consumers, so the good news is that the study now quantifies them so that these trade-offs can be made explicitly. Whole press release for the study is available here.