The Wonk Room

Len Nichols Explains Why Cadillac Health Care Plans Aren't The Cause Of Rising Insurance Costs

Opponents of health reform argue that progressive proposals would require everyone to purchase Cadillac health insurance plans and drive-up the costs of insurance. As health care crisis denier Sally Pipes pronounced during a recent Congressional hearing, “because a young man of 30 wants to get a high deductible plan, Why should he pay $12 to $15 thousand to cover my in vitro fertilization?”

Well, as the New America Foundation’s Len Nichols explained during today’s HELP committee hearing, Pipe’s in vitro fertilization (which only 13 states cover) — or other so-called benefit mandates — has little impact on the price of health care coverage:

Benefit mandates don’t really add that much to costs, the serious econometric work that is in my profession suggests three to five percent, the CBO has concluded that. The state of Texas’ Department of Insurance, not a noted left-wing organization, concluded 3 percent in the state of Texas…The reason those econometric studies find that there is very little specific next impact of specific benefit mandates because they compare the small group hubs, where those things are relevant to the large group hubs. The large group hubs are uniformly more generous,and yet they have lower costs. So let’s ask ourselves, how do they do that?

Watch it:

Indeed, according to state experiences and an exhaustive study by the Congressional Budget Office, “eliminating some of the most expensive mandates — maternity, mental health, and preventive care for children — would bring” only a small reduction to health care premiums. The CBO report found that “the impact in the small group market is no more than five percent of premiums” while California’s Health Benefit Review Program “determined that eliminating all 44 of California’s mandates would reduce premiums by no more than 4.8 percent.”

“The point is this,” Nichols says, “how we pay for and manage care is far more important than the benefits that are covered.” Large employers are able to use their buying power to offer more substantive coverage and bargain for better rates. Conservatives, however, misdiagnose the cause of rising health care costs and typically propose breaking-up large purchasing pools and pushing individuals into bare bone policies on the individual market.

As Nichols explains, to lower health care costs, we need to move in the opposite direction and “extend that bargaining power and that information, that utilization potential to all of us, not just some of us.”

Transcript:

Benefit mandates don’t really add that much to costs, the serious econometric work that is in my profession suggests three to five percent, the CBO has concluded that. The state of Texas’ Department of Insurance, not a noted left-wing organization, concluded 3 percent in the state of Texas, and by the way they include in-patient adult rehab and alcohol counseling so it’s serious benefits there. The point is this: how we pay for and manage care is far more important than the benefits that are covered.

The reason those econometric studies find that there is very little specific next impact of specific benefit mandates because they compare the small group hubs, where those things are relevant to the large group hubs. The large group hubs are uniformly more generous,and yet they have lower costs. So let’s ask ourselves, how do they do that?

A, they do what Ron said a moment ago, the big employers really have the time potential and resources to work with third party administrators to try to be smarter about what they buy and they also negotiate better contracts with the clinicians, because they have buying power. So the point is we need to extend that bargaining power and that information, that utilization potential to all of us, not just some of us.