The Incidence of Mandated Maternity Benefits

by on November 18, 2012 at 5:47 am in Economics, Law, Medicine, Uncategorized | Permalink

I know that is from 1994, but it is by Jonathan Gruber (pdf) and the point is an important one:

I consider the labor-market effects of mandates which raise the costs of employing a demographically identifiable group. The efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group-specific wages. I study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans, raising the relative cost of insuring women of childbearing age. I find substantial shifting of the costs of these mandates to the wages of the targeted group. Correspondingly, I find little effect on total labor input for that group.

This has become more relevant in light of a recent story out of California, excerpt:

The ability of the exchange to lower healthcare costs remains unclear. Experts said average premiums could rise in the exchange because the Affordable Care Act requires improved benefits, but consumers’ out-of-pocket medical costs could decrease under those same changes.

California insurance officials have expressed concern about substantial rate hikes for some existing policyholders going into the exchange.

Under a new rating map approved by state lawmakers, the Department of lnsurance estimated that premiums for similar coverage could increase as much as 25% in West Los Angeles, 22% in the Sacramento area and nearly 13% in Orange County.

I believe some of that is from a pooling effect and some from a greater coverage effect.  I do not, by the way, find this reassuring:

Janice Rocco, the state’s deputy insurance commissioner for health policy, said her agency is pushing a new rating map that would cap increases at 8%. That proposal could be considered during a special legislative session in the coming months.

“We want to minimize the rate spikes,” she said.

I’ve said it before and I’ll say it again: the mandate as currently constituted probably won’t work.  The Medicaid extension can, in principle, work, and yet the state-level rebellion against it does not seem to be fading away.

The Anonymouse November 18, 2012 at 6:46 am

“said her agency is pushing a new rating map that would cap increases at 8%”

Never did quite understand the thinking here: “People don’t have stuff because it’s too expensive. Okay, so we’ll force them to have it.”
*unintended consequences follow*
“Ugh. Now the affordable stuff isn’t good enough. So let’s make a law saying the stuff has to be better stuff.”
*unintended consequences follow*
“Wait. Now the stuff is even more expensive. We’ll make a law saying it’s not allowed to be expensive.”
*unintended consequences follow*
“Wait….”
*flail*
“But… but! Look what a caring person I am!”

Kevin November 18, 2012 at 9:22 am

The whole thing becomes a lot less mysterious when you understand that the entire process is premised on “Look what a caring person I am!””.

doctorpat November 18, 2012 at 8:44 pm

When the consequences can be easily predicted, have been predicted, and have occurred many times before, it is misleading to call them “unintended consequences”.

“Unstated consequences” is the most charitable term that meets the facts.

So Much For Subtlety November 18, 2012 at 9:22 pm

Perhaps they want a system that is a total mess and doesn’t work because they want it to fail? That would then justify the next step which would be the NHS.

Or is that giving too much credit?

Floccina November 19, 2012 at 10:46 am

But a guy making $60k per year will often say that he does not have health insurance because it is too expensive despite the fact that others making $30k pay for and have that same health insurance. Affordable is in the eye of the beholder.

Claudia November 18, 2012 at 7:15 am

Not going to quibble with the need for shared (and even focused) economic pain, but the cap on premiums need not be a disaster. A gradual rise to get rates up to ‘market’ levels over a few years could serve systemic longevity better than one time hike. Also let’s not forget the ability of insurance providers to dynamically adjust to budget caps. I was impressed recently to learn how a government agency had used some creative personnel and IT changes to keep pushing out better data products with less money. Sure more money is better, efficiencies cannot be easily eked out forever, and government agencies are more innovative than private firms, but caps need not be the death blow to mandates. Yes, there are some serious transition and adjustment issues, but I doubt anyone is surprised about that.

Roy November 18, 2012 at 7:47 am

“Government agencies are more innovative than private firms”

???

Emil November 18, 2012 at 8:37 am

” I was impressed recently to learn how a government agency had used some creative personnel and IT changes to keep pushing out better data products with less money”

This is the status quo in the private sector. It is tragic that we are impressed by one government agency managing to do this once

“Sure more money is better, efficiencies cannot be easily eked out forever”

No more money is not better if it can be done with less. I would also suggest that government agencies around the world still have several decades worth of efficiencies to eke out even without technological advances.

“government agencies are more innovative than private firms”

Agree with Roy that you can surely not be serious?

Claudia November 18, 2012 at 9:10 am

1) I did NOT say this was the only data point I had for innovation in a government agency…far from it…just my most recent (as in on Friday) example
2) there are inefficiencies and market failures connected to private firms too…if private insurers had solved universal coverage, pre-existing condition issues, etc we would not be having this discussion at all. We are in the world of second best here, deal with it.
3) Government is not the enemy of innovation…the status quo (and its preservation) is. ‘Well that’s the way we’ve always done it’ kills ideas regardless of who pays the bills and how strong the price signals are. Sure my comment was a bit trollish but it was serious too. Markets (as the actually exist) do not guarantee innovation and cannot solve all our problems.

Jim Clay November 18, 2012 at 4:46 pm

“there are inefficiencies and market failures connected to private firms too”

The difference if that a private firm is too inefficient, it will die. If an agency is inefficient, it does just fine. And yet you really want to convince us against all common sense and experience that government agencies, who have almost no incentive to be innovative, are more innovative? Please.

Claudia November 18, 2012 at 5:07 pm

My original point (with subtle delivery) was if a government agency can find an innovative solution to a budget cap then I fully expect a private insurer can figure out how to manage a premium cap…I was reacting to the concern about Rocco’s statement. People innovate, not organizations and there are a whole range of incentives to innovate.

Cliff November 18, 2012 at 10:50 pm

What exactly is in the universe of possible responses to a rate cap? 1) Cherry picking 2) Not offering insurance in that state 3) massive losses 4) ??? Magic efficiency gains they somehow had no incentive for before? 5) ? Fudge the numbers? Deny claims?

AC November 18, 2012 at 7:56 am

“I find substantial shifting of the costs of these mandates to the wages of the targeted group. Correspondingly, I find little effect on total labor input for that group.”

Clearly we need to mandate that wages must not differ between sexes, and sue the heck out of any large company that violates them. Discrimination must not stand!

John B. Chilton November 18, 2012 at 9:28 am

Indeed. Let’s mandate women’s health benefits like contraception. Oh wait, we did? Oh, that will cause unequal pay? Let’s ban that. Oh, that will cause women’s unemployment to rise? Let’s mandate firms hire one woman for every man. I need to give the argument that unemployment is the result of government regulation a second look.

If we want to make contraception “more affordable” let’s subsidize it directly.

Anthony November 18, 2012 at 5:52 pm

At least that wouldn’t be an expensive government program, as a month’s worth of oral contraceptives is $9 retail, and one can buy 100 high-quality condoms on Amazon.com for $15.

W.E. Heasley November 18, 2012 at 10:06 am

The issue may well be the phenomena of “mandates” in and of itself. That is, “mandates” are nothing more than a classic public choice theory proposition of a highly organized special interest group attempting to focus benefits upon a specific group at the incremental cost to the entire group. When incremental costs, the summation thereof, cumulatively raise total cost to astronomical levels then the notional proposition of a price fixing scheme is introduced.

RZ0 November 18, 2012 at 10:52 am

The unnamed “experts” in the article don’t seem to have a good grasp on Obamacare. Plans will have mandated coverage and certainly there will be increases for people who move to unlimited coverage from the 10K limits you see on Mini-Med policies. For the most part, though, individuals in the exchange will have a choice of Bronze, Silver, Gold and Platinum plans that will cover as little as 60% of expected losses. So individuals whose premium rises because of mandated coverage could move to, say, a bronze plan that will have high limits but higher co-pays and deductibles. In such a case their premiums could actually fall.

Also, capped increases are not unusual in insurance regulation, at least on the property-casualty side I am more familiar with. In some cases, companies request a rate cap, the typical example being a merger, where a customer is now being moved into a different method of determining rates. Companies don’t want to lose the customer, but they are prohibited by law from charging different rates to similar risks. So they ask the state to waive that prohibition, and it is typically granted.

In other cases, companies recoup the income lost to the cap by raising rates for everyone a slight amount. Companies don’t like this because they fear it makes them uncompetitive in the non-capped markets. Obamacare already features rate-capping – rates are capped at a fixed multiple of the lowest rate (3x, I think). In practice it will drive up the rates of younger persons and lower the rates of older persons. This sounds unfair until you recall that most young persons eventually become old persons, so in essence they are subsidizing their future medical costs.

There’s a strong public policy case to be made for mandated coverage for a product like insurance. Many people buy insurance assuming that all policies are alike, but there can be significant differences in what is covered. Some people reading this may be critical of the naivete of these people, but I wonder how many of us have compared health insurance contracts when considering shifting jobs.

Cliff November 18, 2012 at 10:52 pm

Yes of course, because no policy changes will occur between youth and old age. We can’t just have guaranteed renewal?

mw November 18, 2012 at 10:53 am

Why can the mandate only “work” or “not work”? What on earth does that even mean?

JWatts November 19, 2012 at 3:12 pm

And that’s a good point. There is a whole universe of “doesn’t work well” permutations that are far more probable.

Yancey Ward November 18, 2012 at 11:03 am

In other news, the Sun rose in the East this morning.

Howl November 18, 2012 at 2:28 pm

Water remains wet.

ThomasH November 18, 2012 at 12:02 pm

The larger than expected cost of insurance under the stage exchange should be delt with by some conbination of reducing coverage of the less cost-effective proceedures and subsidies for those who cannot pay the costs of a plan that contains cost-effective proceedures. I don’t understand why Tyler thinks this cannot work

Yancey Ward November 18, 2012 at 12:34 pm

Yeah, if only people understood that smart people making smart choices are the solution.

maguro November 18, 2012 at 1:56 pm

You can rest easy knowing that Obamacare will be administered by top men.

Top. Men.

Jim Clay November 18, 2012 at 4:48 pm

LOL. I officially deem you the thread winner, maguro.

Yancey Ward November 19, 2012 at 8:42 am

Bravo!!

JonF November 19, 2012 at 5:00 pm

We do have some real world experience to draw on. I have read somewhere (though I have not verified this) that the cost of policies on the MA exchanges have actually fallen since “Romneycare” began.

David November 18, 2012 at 5:04 pm

Sigh. When I read public discussions of healthcare policy I think that I begin to grasp how physical scientists must feel reading popular discussions of climate change. However, at least with climate change one can take into account that there is no near-by, comparable planet to observe. Not so with healthcare policy, where there are a number of other nations are doing much better while wasting far fewer resources. As a child of the Cold War era, it always seemed odd that communist nations seemed unable to just look around, see that they had got it wrong, and change. Eventually most did, as it turned out. In terms of healthcare policy, the USA today is not unlike North Korea. I wonder which nation will figure it out first.

Cliff November 18, 2012 at 10:54 pm

It is impossible for us to move from here to there because it would mean restricting peoples’ access to medical care, which they will not accept.

Howl November 19, 2012 at 2:59 am

“In terms of healthcare policy, the USA today is not unlike North Korea.”

And in which ways, praytell, is the US “not unlike” the DPRK when it comes to health care? (Or, anything, if you run out quickly.)

JWatts November 19, 2012 at 3:22 pm

“In terms of healthcare policy, the USA today is not unlike North Korea.”

US healthcare policy is completely unlike North Korea in any rational argument. North Korean society is based on severe deprivation, totalitarianism, idolatry and brutal enforcement. To compare it to North Korea is just ridiculous hyperbole. The US health care system is good to best in the world on many metrics.

David November 20, 2012 at 1:34 am

It’s your analogy interpretation capacity that is failing. North Korea has a broken system of government and its failure is obvious by comparison with the many comparable countries that have left it behind. Likewise, the USA has a broken healthcare system and its failure is obvious by comparison with other developed countries. The US healthcare *system* is not “good to best” on any metric other than cost where one takes higher cost as a measure of “goodness”. If you’re on the provision side of things and cost to others is your revenue per service, then yes, the US system is excellent. Because the US system maximizes the cost of services and thereby maximizes the compensation rates of some on the service side, it is certainly possible to obtain excellent care within the US system, but that is not a sign that the *system* is in any way good.

Is it really necessary to explain cost-benefit comparison to readers of an academic economics blog?

In addition to providing no measurable improvements in outcomes in return for the vastly inflated costs that it creates, the US healthcare system also stifles small/new business formation, thereby hindering the growth of the US economy. At the same time that it provides huge implicit subsidies to the largest businesses and barriers to entry by potential small competitors it still disadvantages large US employers relative to international competitors that employ workers in other developed countries. It’s a system that works to the benefit of no one other than some over compensated providers and the private health insurance industry.

To summarize, there is good healthcare available in the US, but there is equally good healthcare available in many developed countries and in quite a few developing countries. However, that healthcare is far more expensive in the US because the US healthcare *system* is a joke.

Unfortunately, many Americans are far too jingoistic to face up to the fact that the US got this one wrong. In that sense they are like the modern day Trotskyites who still claim that Communism is the optimal system and it hasn’t looked good so far because nobody has given it a fair chance.

mulp November 18, 2012 at 6:36 pm

“I’ve said it before and I’ll say it again: the mandate as currently constituted probably won’t work. ”

Ok, so you are now fear the conservative solution that Mitt Romney drove for Mass and Clinton in turn stole from Mitt to preempt Mitt’s argument for his presidency in 2008, and that was implemented in 1995 by Switzerland will not work. It was the insurers who demanded the mandate convincing Obama he had to go with the conservative’s mandate.

Do you know believe some for of “single payer” is the solution, and there are many models and implementations.?

Taiwan has the purest single payer. Israel mandates individual join one of 4 authorized HMOs with government subsidies based on income. France and Canada have Medicare for all with optional supplemental policies. Germany has many regulated insurers with income bases subsidies with individual mandates to buy policies. And so on for dozens of additional nations.

In all cases, health care in those nations is significantly less in PPP$ and significantly less in terms of share GDP, yet the out comes are certainly no worse than the US, and look better, but fine, you want to argue the statistics are not comparable, but you can not argue that people in the US must wait much longer for care than in those other nations. Millions of people must wait for care at ERs and free clinics, and for needed surgery they are too poor to afford must wait months or years to obtain charity care.

My brother a few decades ago was insured through his employer as a young adult with two young kids and a part-time working wife ended up without insurance when a genetic condition gave him a rare tumor (10-50 cases a year in the US) caused the insurer to cancel the group policy for the employer. This was in a time when employer insurance benefits were much stronger, costs were not the crisis they have been for the past two decades and especially the past decade, and when hospitals were able to include charity and unpaid care costs in the billings for private and government insurance billings. It took a year before he could get surgery while suffering disability that hindered his ability to work (one tumor was in his ear), and the hospital, the doctors, provided charity care, the Kansas insurance commissioner forced a partial settlement out of the insurer, and the State of Kansas provided a subsidized loan for part of the cost to be repaid over two decades. My sister and I had the same kinds of tumors at a later age, but we had employer benefits as dictated by Federal law, which was not only cheaper than individual policies, but less than the cost for my brother’s small business, but because of the Federal regulation, it was no hassle for the four surgeries my sister needed and the two I needed.

And my brother’s medical problems caused problems for his small business employer who lost coverage for all his employees and his wife who had a preX, so the “free market health care” system didn’t work all that well to prevent long waits for surgery back in Kansas in the wonderful days of Reagan economic freedom.

Why can’t conservatives design a system that works as well as in Canada, France, Israel, Japan, Germany, UK, Switzerland, Taiwan, and costs less while covering everyone regardless of their parents or the environment of the community they grew up in? The adverse effects of mercury, lead, air and water pollution is clear, but not the full nature of the problems, but conservatives object to restrictions on pollution, but don’t propose a means of dealing with the health costs that follow.

Floccina November 19, 2012 at 10:57 am

I think that Tyler has pointed to UK’s NHS as a good system considering the political realities.

JonF November 19, 2012 at 5:04 pm

An insurer which cancels coverage when legitimate claims occur under a policy is committing an act of fraud and should be prosecuted accordingly.

byomtov November 19, 2012 at 5:39 pm

Fat lot of good that would have done mulp’s brother.

Tom West November 18, 2012 at 9:47 pm

Why can’t conservatives design a system that works as well as in Canada, France, Israel, Japan, Germany, UK, Switzerland, Taiwan, and costs less while covering everyone regardless of their parents or the environment of the community they grew up in?

I think you fail to understand that there are always trade-offs. For most Americans, the trade-offs for the benefits gained from the Canadian, French, …. health-care systems would not equal the benefits lost.

I am a Canadian, and I definitely think our health-care system is superior. But it’s superior by *my* utility function (personally, I’m doing well enough that I’d get better health-care under the American system, but that’s far from my only metric). It’s scarcely surprising the American system does very well by many other people’s metric.

So, no, it’s not lack of brains. It’s far more to do with different cultures producing broadly different utility functions.

byomtov November 19, 2012 at 5:54 pm

Let me see if I understand this. Employer-based health policy has to cover childbirth, so the more women of child-bearing age employer hires the higher the group insurance premium is. This added expense ends up being reflected in reduced pay for women of child-bearing age. Is that the idea?

The underlying assumption seems to be that the costs of childbirth are solely the responsibility of the mother, rather than being split evenly, say, between mother and father. Is that reasonable? Why shouldn’t the presumption be that the father is responsible for half the cost. So if you hire a man who might become a father your insurance has to cover his possible obligation for childbirth.

Finch November 20, 2012 at 9:54 am

Surely a large fraction of the cost of childbirth is born by husband’s insurance policies? I have to think a significant fraction of the time either the husband is the only one working, or is the one with the insurance policy the couple is using if both work. Married couples usually have one insurance policy, not two. So I would guess the insurance component of childbirth expense to fall mainly on men and thereby depress the wages of married men. At least this would dilute the effect. Maybe they address it in the paper, which I conspicuously did not read. But there are lots of things (like having something to do at 7pm) that depress the wages of married men…

I think the more interesting question for women ought to be the wage depressing effects of maternity leave, not health insurance. The leave is more directly attributable to the mother – husbands don’t get the opportunity to pay for that benefit.

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