Federalism, federal regulation, or free market? An examination of mandated health benefit reform

Every state regulates the substance of health insurance contracts issued to its residents, requiring the coverage of certain treatments, services, and providers. These state mandated health benefit laws apply only to insured health plans, while self-insured plans (typically sponsored by a large employer) are exempt. The disparate application of state mandated benefit laws is criticized as contributing to an unjust and expensive system of health care in the United States. As a result, state mandated benefit laws are under attack and the subject of numerous federal reform efforts. This article explores three possible approaches to mandated benefit reform: (1) exclusive state regulation of mandated benefits, (2) deregulation of mandated benefits, and (3) positive federal regulation of mandated benefits. The article concludes that there are compelling arguments against both exclusive state regulation and deregulation. While federal regulation is far from perfect, it has significant advantages over the status quo and represents the best way forward for mandated benefit reform. Current and proposed mandated benefit reforms are analyzed in light of these conclusions. The article exposes these reform efforts as coordinated movements toward deregulation, an option that, while respecting individual rights, will harm the sick while improving the position of the healthy.