In the health care field, the Holy Grail of rent-seeking is to get one’s medical device, drug, or procedure added to state health insurance mandates. Before Obamacare, health care insurance regulation had been a state function, and each state had written laws mandating that all health insurance policies written in the state must cover certain services. By getting one’s particular service added to such a mandate, the service essentially becomes “free” to consumers in that state (of course it’s not free — everyone pays in the form of higher premiums, but the marginal price for the service goes to zero).
Imagine you have a procedure — let’s use laser elimination of birthmarks as an example. This procedures requires a series of treatments using a fairly expensive piece of equipment to produce results that are of enormous value to a few people with extensive birthmarks, and of smaller value to many other people with smaller birthmarks. Business growth in such a field is typically good at first as those who most value the procedure pay for it. But it can be hard to grow outside of a relatively small niche, as most potential customers may consider it to be an expensive elective cosmetic procedure that, given other uses for their money, they can do without. What can an aspiring dermatologic surgeon do? Run to the government!
In 1997, the University of Indiana conducted a study of the laser treatment of these birthmarks. I don’t know who funded the study, but tellingly the study findings did not really touch on the efficacy of the treatment or its risks. The study surveyed a number of dermatologic surgeons. What was its primary finding? ”Based on current health care policy guidelines, laser treatment of port-wine stains should be regarded, and covered, as a medical necessity by all insurance providers.” In other words, the sole purpose of this research was to convince legislators to add this procedure to their state’s insurance mandates. To date, this procedure has been added to the must-carry list in only two states, but in those two states doctors no longer have to convince price-sensitive patients that this elective procedure is worth the cost – after all, its free!
As you can imagine, the cost of these mandates are staggering for those of us who pay the premiums. State governments are requiring us to pay higher insurance rates in order to cover procedures we might never consider. Four states have mandated coverage for naturopaths; three for athletic trainers; one for oriental medicine; eleven for hair prosthesis; four for massage therapists; and three for pastoral counselors. The state with the most such mandates is Rhode Island, with 70, a state which not coincidently also has the third highest insurance premiums in the country.
On a quasi-related note, John Goodman has thoughts on "government failure" (an analog to market failure) as it applied to health care. It is a point that cannot be made too often. Merely pointing out supposed imperfect outcomes from private action does not immediately justify government action -- too often people take the default position that if an improved outcome can be imagined, the government can achieve it. But does this ever happen? In health care, the irony is that many of the supposed market failures we are "fixing" with Obamacare are in fact results of past ham-handed government action.