OpinionMeister

Tuesday, January 25, 2005

Interstate Health Insurance

An op-ed in the Wall Street Journal proposes a wonderful idea, allow people to buy health insurance from other states. Link. (subscription required)

Insurance premiums vary greatly from state to state. Last month, eHealthInsurance, a leading online insurance brokerage, compared the cost of a standard family insurance policy ($2,000 deductible with a 20% co-insurance) across the nation's 50 largest cities, involving some 4,000 insurance plans and 140 insurance companies. Some results are startling. Consider: a non-employer-based family policy for four in Kansas City, Mo., costs about $170 per month while similar coverage in Boston tops more than $750 a month. (...)

Why the price difference? Many states dictate the type of services and providers. New York, for instance, requires that the services of a podiatrist be covered. (...)

Some states have gone further. Laws force insurers to sell to any applicant (guaranteed issue) and at the same price, regardless of age or health (community rating). Faced with higher premiums for insurance they seldom use, the young and healthy drop their coverage, leaving an insurance pool of older, sicker people -- and even higher premiums. After a decade of such political meddling, the average monthly cost of a family policy in New Jersey bests the monthly lease of a Ferrari. (...)

A remedy? Some suggest massive tax credits and other subsidies, an unlikely possibility in light of the budget deficit. An alternative would be to allow out-of-state purchases of health insurance. The federal McCarran-Ferguson Act of 1945 empowers states to regulate "the business of insurance." Nothing prevents Congress, however, from allowing interstate sales. The foundation of such a bill would be the Constitution's Commerce Clause. Individuals and small businesses would then be able to shop around and find a low-cost policy -- an affirmation of free-market principles since interstate restrictions now leave many Americans at the mercy of a small number of local health insurance carriers.

Where I live, I have a choice of Blue Shield, Blue Cross or Health Net. That's it. I would love to be able to shop around more broadly for health insurance, which is obscenely expensive, partly due to the lack of competition. True, we also have to bring down the cost of the health care that the insurance is paying for, but the introduction of health savings accounts, by introducing some market forces into health care, should go a long way on that score.

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