Regulation of Bad Things That Almost Never Happen but Could: Hipaa and the Individual Insurance Market

Since the collapse of the Clinton plan for large-scale health reform, Congress has approached the medical care sector of the economy very gingerly. One apparent lesson of the reform (though an obvious lesson in life) is that people are much less eager for improvements they have to pay for than for those that are supposed to come at zero cost. Once it became clear that the Clinton plan would have had serious financial and distributive implications, the electorate seemed in no mood to even risk the chance of large-scale taxes and transfers. But the temptation to court votes by “doing something” about the medical care sector, and the obvious and real problems of the sector itself, did, after a several-year hiatus, gradually bring politicians back into full concern mode. First, a few small laws were passed about maternity and mental health benefit design, then came the Health Insurance Portability and Accountability Act (HIPAA), and now there is a full rhetorical court press concerning the Patients’ Bill of Rights (PBOR). Politicians’ desire to avoid spending tax collections that would be used for other purposes (including tax cuts) has obviously shaped the form of these interventions. It is the shape of health regulatory intervention that, after some general remarks about its character, I want to consider in the context of some (though by no means all) aspects of HIPAA. My view is that much of that law (as with much of PBOR, possibly even including the liability issue) largely represents regulation that forbids practices that rarely happen. While some of these practices may always be harmful, and others might selectively do harm, my point is that the arguments for these regulations are