Monday, October 6, 2014

In Some States, a Cost Crunch over Expanded Health Benefits

President Barack Obama promised that his Affordable Care Act would work to reduce health costs. But a recent Kaiser Health News article outlined one way in which the law–and the way the administration and states have implemented it–is helping to increase costs.

The issue surrounds benefit mandates at the state level, which require insurers offering policies in that state to cover a particular type of treatment, provider, or service. While many of these mandates may sound appealing, they incrementally raise the cost of insurance–for procedures that some people might not wish to purchase, feel they need, or find morally objectionable. A 2009 Congressional Budget Office analysis found that the ACA’s package of mandated benefits would raise premiums on the individual health insurance market 27% to 30% because individuals would be required to purchase richer coverage and because that richer coverage would induce additional consumption and demand for care.

The Affordable Care Act contains a provision designed to dissuade states from enacting additional benefit mandates. Section 1311(d)(3)(B) of the law directs states to reimburse the federal government for its costs, in the form of additional exchange insurance subsidies, associated with any new benefit mandates enacted. However, as Kaiser Health News reported last month, “some states are simply excluding from the mandates plans that the states would have to pay for.” The end result: conflicting requirements and benefit packages for different categories of coverage, creating confusion for consumers and insurance companies.

In addition, the federal Web site offering information on state-mandated benefit packages reveals that the administration has exempted many types of mandates from the Section 1311 repayment requirement. For example, states can enact provider requirements mandating coverage by a particular type of health professional, as well as dependent coverage requirements (e.g., for newborn coverage, domestic partners, etc.), without having to pay the federal government for the additional subsidy costs associated with the new requirements.

Obamacare raised individual market insurance premiums by mandating additional benefits, but some states now view these stronger insurance requirements not as a ceiling but as a new floor. Yet by imposing new mandates that will raise premiums further, their actions may make the Affordable Care Act increasingly unaffordable for consumers—and for the taxpayers funding insurance subsidies.

This post was originally published at the Wall Street Journal Think Tank blog.