IN A recent study published by the Dallas-based National Center for Policy Analysis leading health economists John Goodman and Gerald Musgrave show that state regulators, responding to pressure from special-interest groups ranging from AEDS patients to bald-headed women, have imposed a myriad of Mandated Health Insurance Benefit (MBIB) laws.

This kind of legislation, according to Goodman and Musgrave, forces all private health insurers to “cover specific diseases and disabilities and specific health-care services.” Consumer advocates argue that such laws are necessary so that the poor and people who are at high risk for certain illnesses and disabilities are guaranteed “affordable” health insurance. Ironically, these efforts have made basic health insurance for a rapidly growing number of Americans prohibitively expensive.

These laws force consumers to purchase coverage for certain illnesses and disabilities, whether they want it or not, as part of the basic or standard insurance policy. “In some states,” write Goodman and Musgrave, “couples who cannot have children cannot buy policies that do not provide for newborn-infants coverage…. People who do not intend to see chiropractors, psychologists, or marriage counselors cannot buy policies that exclude such coverage.” This sort of legislation prohibits Americans from purchasing health-insurance policies that suit their own needs and means.

In 1970 there were only thirty MHEB laws in America. Today there are close to one thousand, and they exist in every state. These statutes force insurers to cover people who are at exceptionally high risk but prohibit them from adjusting their prices accordingly. The result: low-risk consumers, if they wish to protect themselves and their families at all, must pay ever-increasing premiums in order to cover the costs of insuring certain politically powerful groups, e.g., AIDS patients, drug addicts, the blind, amputees, etc. The alternative is to go without medical insurance.

It is not subsidization per se that is the problem. Just as in the delivery of newspapers or milk, where those who live closer to the plant subsidize the delivery of services to those who live farther away, a certain amount of voluntary subsidization may also occur in a free-market insurance network. Insurers often charge low-risk consumers premiums which are higher than their particular riskiness warrants (but low enough so that the consumer is still willing to pay) in order to subsidize higher-risk consumers; over all, insurance premiums are kept affordable. For insurers to do this and remain competitive, the network must have a large pool of clients, most of whom are of low risk.

When governments impose MHIB laws, however, the actual share of high-risk people within the insurance network automatically rises; they are, after all, getting a real bargain. On the other hand, the percentage of low-risk people in the pool is significantly reduced because federal law allows some fortunate groups to opt out of the traditional insurance industry. Large and middle-sized companies often establish their own employee health-insurance plans in house. Since they do not purchase insurance from outside coverers they are not subject to MHIB laws.

State regulators thus create a vicious circle. MHEB laws force private insurers to insure ever-increasing numbers of high-risk people at below-market prices. To cover their increased costs, they must drastically overcharge low-risk consumers. As prices rise, low-risk people opt out of the health-insurance market, preferring to take their chances with illness or injury, or, as in the case of larger groups, insuring themselves rather than pay uneconomical insurance rates. As the number of low-risk people in the pool dwindles, insurance premiums for the average American rise even higher. The cycle makes it impossible for the natural “subsidization” process to keep overall premiums low.

Ironically, the very people these statutes are designed to aid are harmed the most. When financial pressures mount, health insurance is one of the first things the poor cut from their budgets. When the choice is feeding your babies or paying a monthly insurance premium of at least $600 (for a family of four) there is no contest. And the evidence bears this out. According to Goodman and Musgrave, 69 per cent of all uninsured full-time workers in 1985 earned less than $10,000.

Moreover, for consumers who are at high risk of acquiring a catastrophic illness covered by MHO3 laws but who will not necessarily acquire it, e.g., hemophiliacs who do not have AEDS but must regularly have blood transfusions, or people with a family history of familial polyposis but who do not have polyps or colon cancer, MHEB laws make it exceptionally difficult to obtain health insurance, even if they are willing to pay higher prices. Because the insurer is not permitted to cancel the policy after the disease is diagnosed, most insurers go out of their way to avoid selling any policy to people who are at even a slight risk of acquiring the disease. And they paint with a rather broad brush when determining who these people are. For example, some insurance companies have stopped doing business in large cities like Washington, D.C., altogether to avoid MHEB laws regarding AIDS.