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Deregulation would improve N.C. health care costs, quality, access, and innovation

JLF report recommends scrapping certificate-of-need laws, mandated benefits, most licensing

Contact: Joseph Coletti
919-828-3876
jcoletti@johnlocke.org

August 25, 2010

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Click here to view and here to listen to Joseph Coletti discussing this Policy Report.

RALEIGH -- North Carolina lawmakers should eliminate certificate-of-need laws, mandated health insurance benefits, and most licensing requirements if they're interested in improving health care in the state. That's the conclusion the John Locke Foundation's top health expert reaches in a new Policy Report.

"Regulation of hospitals and other health care providers makes care more expensive, while mandated benefits make insurance more expensive and encourage more unnecessary regulation," said Joseph Coletti, JLF Director of Health and Fiscal Policy Studies. "The deregulation recommended in this report would improve North Carolinians' access to care and quality of care. These changes also would have a positive impact on cost and innovation."

Coletti focused his attention on state-level health care reform in the wake of the recent federal reform legislation.

"Health care reform was supposed to lower costs, improve access and quality, and lower the number of uninsured," he said. "Despite the recent debate in Washington, most changes that could yield improvements in these areas must be made at the state level. Current state regulations limit where we can get treatment and from whom, how we pay for care, what our insurance has to cover, and what happens when things go wrong."

The report takes aim first at licensing and certificate-of-need laws, then tackles insurance benefit mandates. Coletti examines the stated reasons for the regulations and assesses their impacts on cost, quality, access to care, and innovation. Then he offers alternatives to traditional regulations.

For example, occupational licensing in health care is supposed to protect consumers from frauds and charlatans, Coletti said. "It's not clear from evidence that consumers demand occupational licensing to give them a sense of assurance," he said. "More often, it's practitioners themselves who go to the legislature to seek the restrictions tied to licensing."
The practical effect is to limit the numbers of practitioners, Coletti said. "With fewer providers, prices rise, and there's a net welfare transfer from consumers to suppliers," he said. "Higher prices could be justified if they led to higher quality, but often they do not. Plus those higher prices reduce access to care. Restrictive licensing also stifles innovation such as telemedicine and cross-border medical practices."

Certificate-of-need laws force hospitals and other providers to seek state permission before adding new facilities or equipment.

"These laws limit capital investment, compounding the innovation problems created by licensing restrictions," Coletti said. "CON laws set a high bar for the creation of new outpatient facilities. This virtually guarantees that new outpatient facilities will be owned by existing hospitals. CON laws also limit the ability of for-profit hospitals to compete more generally."

The simplest alternative to the current licensing and certificate-of-need system is to eliminate it, Coletti said. "If eliminating licensure totally is too difficult, the state can recognize licenses from other states, ease formal education requirements in certain occupations, and expand the scope of practice for licensed occupations so as not to limit excessively the tasks individuals can perform."

In addition to the problems linked to licensing and certificate-of-need requirements, North Carolina mandates that health insurers include 50 specific benefits in their policies, Coletti said.

"The overall effect of mandates is to raise the price of insurance, limit consumer choice and product diversity, and increase the number of people without insurance," Coletti said. "While politicians reap the rewards of creating a new goodie for insurance subscribers, the Congressional Budget Office estimates that mandated benefits account for 5 percent of the cost of health insurance premiums. They're essentially a tax on health care consumers."

Large employers that self-insure can avoid most state regulations, while small businesses suffer from mandates, Coletti said. "For small businesses, the higher cost of insurance can lead to lower wages, fewer employees, or less generous benefits in other areas."

Mandates tend to benefit providers of mandated coverage, along with dominant insurers who see reduced competition, Coletti said. "These mandates have a negative impact on quality and cost, and they lock in current medical practices and payment methods -- thus limiting competition and innovation."

North Carolina could take a simple step to deal with the problem, Coletti said. "Eliminate mandated benefits altogether."

"If that's not possible, lawmakers could insist on expiration dates for mandates and subject them to periodic review," Coletti added. "They could give subscribers a choice of whether to purchase mandated coverage. They also could permit residents to purchase insurance from other states without having to meet North Carolina regulations."

North Carolina can expand health care access, reduce cost, and promote innovation without harming quality, Coletti said. "The most effective way is to put more power in the patients' hands," he said. "Done correctly, North Carolina could build on its reputation as a leader in health practice innovations, a reputation based on successful public and private efforts."

Joseph Coletti's Policy Report, "Deregulating Health Insurance and Health Care Providers in North Carolina: Implications for health care cost, quality, access, and innovation," is available at the JLF Web site. For more information, please contact Coletti at (919) 828-3876 or jcoletti@johnlocke.org. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or mkokai@johnlocke.org.

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