Free The Market

From IBD:
Posted 4/18/2006

Health Plans: States have come up with all sorts of schemes for expanding coverage. But they could do a lot of good simply by getting out of the way.

Massachusetts has been getting the headlines lately with its new law requiring every resident to have medical insurance — on their own dime if they can afford it, at taxpayers' expense if they can't.

But the Bay State is just one venue out of 50 for a very complex story.

The debate over how best to reduce the ranks of the uninsured is going on in state capitals just about everywhere. Legislators and interest groups are pushing plans for wider and cheaper coverage through employer mandates, state-paid systems, small-business pools, tax reform and everything in between.

All this activity does have a common theme:

It's state, not federal. That's a significant story in itself. By long-established practice and explicit federal law (the McCarran-Ferguson Act of 1945), most insurance regulation is left to state governments. That includes health insurance, which states oversee with widely varying results for the consumer.

State-to-state differences in premiums can be dramatic, especially in the market for individual coverage. A survey last year by the online insurance marketplace eHealthInsurance compared the price for similar policies in 50 cities and found a roughly sixfold difference between the cheapest and most expensive. A policy for a single 30-year-old, nonsmoker that cost $54 a month in Long Beach, Calif., went for $334.09 in New York City.

Meanwhile, Boston, with a monthly premium of $267.50, was second only to New York. That will be a problem for Massachusetts' new mandatory coverage plan unless premiums fall to more affordable levels.

Regulation is only one of many factors that determine the cost of insurance. Premiums are also set by local medical costs, claims records, the risk profile of a given insured population and the financial condition of insurers, among other things.

But states certainly do their part. They add to insurers' costs by adding mandated coverage for specified services, illnesses or types of practitioners, such as acupuncturists and chiropractors.

Some, such as New York, keep premiums extra high for the healthy with guaranteed-issue and community-rating laws.

These are meant to spread the cost of insuring the sickest patients, but they've have had the unintended consequence of pricing young people with modest incomes out of the market.

We're not holding our breath for over-regulated states to change their policies, at least not without a competitive jolt. And as long as Washington leaves health insurance in the hands of state legislatures and commissioners, there will be no effective national insurance market and no effective competition.

So it's time to treat the marketing of health coverage as interstate commerce — which it truly is, in the Internet Age — and allow policy sales across state lines. Rep. John Shadegg, R-Ariz., has introduced a bill to that effect (the "Health Care Choice Act," H.R. 2355), and passing it should be a priority for Congress this year.

As for the states, their priority should be to get the best deal for consumers. Stepping aside and letting the insurance market work is one way to do this.