In 2005, 1.1 million, or 18 percent, of working age North Carolinians were without health insurance. (Some of these persons lacked insurance for part of the year while others were uninsured the entire year.) Additionally, 262,000 children were uninsured.
Many people do not have insurance because they cannot afford it, including those that enjoy a relatively high income; some simply choose not to buy it for other reasons. According to U.S. Census data, almost one in five of North Carolina’s 1.3 million uninsured earn more than $75,000 per year; 40 percent of uninsured individuals make more than $46,300, the median household income in North Carolina. According to the Kaiser Family Foundation, a health plan for an average family costs an average of $833 per month, or almost $10,000 a year. But in North Carolina health insurance is more expensive than in other states because of costly state regulations
Decreasing the state’s regulatory burden would not only permit more families to buy their own health insurance, but also:
While many people are forced to choose between higher take-home pay or health benefits, several factors frustrate this decision in North Carolina. Competition among health providers is limited insofar as North Carolinians are prohibited from buying out-of-state health insurance. Unlike cars, computers or almost any other item, people in North Carolina cannot look to Virginia, South Carolina or anywhere else to purchase a health plan.
This is primarily because each state requires health plans to meet a complex set of coverage mandates (See Q&A #2). The more mandates, the more expensive the policy. No two states have the same set of coverage mandates. (North Carolina has 46.) Regulatory compliance is one reason why only a limited number of insurance providers can sell health insurance in North Carolina.
For example: a family with three children in Raleigh who wants to purchase a plan with a deductible less than $3,000 and no coinsurance will only be able to choose from three plans. These plans cost up to $7,500 per year, but do not cover dental care or visits to medical offices before the deductible is met. Once dental and doctor’s visits are factored in, the total cost easily reaches $10,000 per year, including the deductible.
The lack of competition among insurance providers in North Carolina also causes premiums to rise faster than inflation. Since 1999, health insurance premiums nationwide have increased four times faster than inflation.
Some suggest there would be fewer people without insurance if the federal and state governments expanded Medicaid. U.S. Census data on health insurance coverage suggests the opposite. Indeed, there is an apparent inverse relation between Medicaid expansion and reduced rates of health insurance. For the past two decades Medicaid enrollment has expanded significantly in North Carolina, with the share of people on Medicaid tripling since 1987. At the same time, the number of North Carolinians without insurance increased by one-third between 1987 and 2005.
Only among children has there been a slight decline in the rate of uninsured. But this decrease has come at a steep price in the form of higher Medicaid spending. An 18 percent drop in the number of uninsured children correlates with a 147 percent increase in the number enrolled in Medicaid. That means a 1 percent decrease in the uninsured rate requires an 8 percent increase in Medicaid enrollment. Tax-paid health insurance, in other words, is a very inefficient method of reducing the rate of uninsured.
If the state continues with its current plans to use Medicaid to reduce the rate of uninsured children, a massive – and grossly inefficient – increase in Medicaid spending can be expected. In order to reduce the rate of uninsured children by another 10 percent, or 26,000 children, the state would have to expand Medicaid by 80 percent – a move that would entail adding another 400,000 children to the 588,000 children already on Medicaid.
The expansion of Medicaid not only entails higher federal and state taxes, it also causes higher insurance premiums for working families. More kids on Medicaid means fewer kids on private insurance. Yet because children are considered a low risk for insurance providers, a family can almost always insure their own child cheaper with a private plan than if the child is covered by Medicaid. Take our Raleigh family as an example: their premiums would remain the same if they decided not to include their children under their policy. By contrast, adding three more kids to Medicaid would cost North Carolina taxpayers $4,500 per year. Thus, expanding Medicaid coverage for children is less efficient than simply permitting more families to purchase affordable health insurance coverage for themselves.
The point is that when children are offered “free” insurance through Medicaid, it drives up the premiums for their parents, who then may not be able to afford coverage at all. Moreover, since insurance providers are left with a pool of relatively high-risk buyers, they have to raise premiums for everybody. Therefore, even individuals and couples with no kids benefit if children are enrolled on their parents’ own private insurance plan.
The real solution to expanding health insurance coverage in North Carolina lies in reducing costs for everyone. In particular, North Carolina should lower its number of coverage mandates. By doing so, the state would not only reduce the price of insurance sold by providers within the state, but also make it possible for families to buy insurance from states that have the same number and type of mandates. For example, families who buy health insurance in the District of Columbia only have to pay for 17 coverage mandates. Additional coverage is available but is not mandated.
If North Carolina similarly reduced its number of mandates from 46 to 17, the average family could see a 25 percent reduction in their health insurance premium. If the state took the further step of permitting families to buy health insurance from other states, increased competition would push costs down even more.