Rx: The Interstate Insurance Competition Cure
Wall Street Journal -- Allow us to suggest a path to competition that will be a lot easier than erecting the impossible dream of a public option: Let insurance companies sell health-care policies across state lines. Interstate competition made the U.S. one of the world's most efficient, consumer driven markets. But health insurance is a glaring exception.Affordability would improve if consumers could escape states where each policy is loaded with mandates. "If consumers do not want expensive 'Cadillac' health plans that pay for acupuncture, fertility treatments or hairpieces, they could buy from insurers in a state that does not mandate such benefits," Devon Herrick (senior fellow with the National Center for Policy Analysis) has written.
MP: The chart above (click to enlarge) is based on this study from the America’s Health Insurance Plans (Table 3), and shows the huge variation in the average annual premium for single health insurance coverage by state (2006-2007). The average health insurance ranges from a low of $1,254 in Wisconsin to a high of $8,537 in Massachusetts, and the national average is $2,613. That kind of variation couldn't exist in a competitive market for health insurance. Interstate competition for health insurance would go a long way towards bringing health insurance costs down.
Originally posted at Carpe Diem.
11 Comments:
Unfortunately, Obama is against this idea.
How much of the state-to-state discrepancy is due to different coverage mandate burdens? Interstate competition would not solve that problem.
By all means, we should have national insurers, and they should be able to compel all disputes into rapid and binding arbitration, and to effectively practice humane euthanasia (ie pull the plug).
This is the only way to hold down expenses.
I suppose interstate insurance conglomeration will be as successful as interstate financial conglomeration. ROTFLMAO at TBTF libertarian twits! Please give me a get out jail card, mommy.
Ridiculous argument. Health care costs, incomes, taxes, general price levels, demographics, and laws vary across state lines. That goes a long way to explaining varying health care costs and premiums. Allowing interstate underwriting will improve competition which will lower insurance costs, but not necessarily health care costs. Monopsony power of insurers in some states are a detriment to both beneficiaries and providers, but they keep costs of care low. They might even offset monopolistic providers.
Interstate sales of health policies will not SOLVE health care costs, but will be another step in putting competitive pressure on such costs.
For all intent and purposes, life insurance is sold nationally. Yes, there are needless state licensing requirements, but they are just admin problems passed through to the customer in slightly higher (and unnecessary) premium costs.
What is important is that there is no significant undue state regulation or price setting in this field. Ease of entry into markets is an important factor.
As a result, the life insurance companies have low profit margins -- due to intense competitive pressure from essentially free market competition.
So, is it the states or the Feds that are resticting the sale of health insurance across state lines? If it's the states that are doing it, then this is just federalism in action. If Mass. wants to set up a system that doesn't work, then let Mass. fix their problem.
The only thing that is clear to me is the federal government doesn't have any authority to do anything with health care. Of course, you'll never get anybody in the federal government, including the courts, to recognize that.
I think auto insurance helps make the point. There are varying state requirements and legislation, and the average premiums vary among states. But they vary widely even among the insurers doing business within a state. So it's not just the requirements driving the premiums or there wouldn't be big variation.
For my health insurance, I bet the coverage far exceeds minimum requirements set by the state of California. It probably has some coverage simply out of tradition in California and to be comparable to other plans. In fact I know it does since every employer I've worked for offered different plans and they were all slightly different in different categories. Slightly more prosthetic coverage, slightly lower drug benefits, slightly better substance abuse coverage, etc. So they're all exceeding the requirements in at least some of the areas, and most likely far exceeding overall.
Unlike car insurance where I can actually get a bare minimum plan, I bet finding a bare minimum health insurance plan is difficult. But even the bare minimum for car insurance is to cover damage done to other people's property. If I want to opt out of mental health or substance abuse coverage and pay a lower premium, why should I not be able to?
Given the recent coverage of Medicare cost differences around the country much of this difference can be explained by different styles of treatment. If you go national you will soon average nationally. There is a neat trick to solve this based upon comparative effectiveness. If the doctor follows approved standards of care any malpractice suits are automatically tossed out. This will make medical care more uniform via a market mechanism.
The idea of expanding interstate health care insurance options/products is one that is frequently suggested by those against the Obama reform. The idea is offered as one that is simple and efficient, with no downsides. The premise is that one could buy policies from companies across the country, looking for one that would fit one’s individual needs. Implied is that “barebones” policies could be found at very cheap costs. My arguments against this are:
1)Consumer protections: State-based products, that do not have federal oversight could be very hard to enforce and/or collect from in the case that they are needed to pay health care expenses. A consumer in one state, buying a product from another state, could expect little or no help from his/her state government in the case that there were problems with the policy. Like state-based credit cards, these entities would simply not have to answer to state agencies from another state.
2)Administrative Overhead: One of the major criticisms of our current health care system is the amount of administrative overhead and paperwork involved with communicating with a variety of insurance companies, many of which are notorious in delaying/denying payments. Having hundreds, if not thousands, of insurance companies covering patients within a state could be absolute chaos. There would be different forms to fill out and understand, differing time zones, etc. It could only make matters worse than they are now.
3)Comprehensive Protections: “Barebones” policies can only cause consumers problems. AARP is currently involved in a lawsuit about a policy that was sold through United Health, I believe, where there was a cap of $50,000 per year for payments. A consumer, thinking she had comprehensive, catastrophic health insurance, was shocked to find otherwise when her husband got seriously ill. It was a disaster. This could happen over and over again if state-based health insurance policies, without federally mandated minimum standards and protections were purchased by consumers in other states.
4)Preventative Care: The book “The Healing of America,” by T.R. Reid, makes the point that the average number of years that a consumer stays with the same health care insurance policy/company is about six years. This, he says, is too short of a period for the insurance company to be interested in preventative care. Reid feels that preventative care will only come about for most Americans under a national system of insurance-policies standards and oversight. Having “more” competition via more health insurance products, many of which are offered via a largely unregulated, interstate system, would simply reduce what incentives health insurance companies have now in the area of prevention.
I believe President Obama's general philosophy concerning most of the economic strife our country faces is that: the free market system is to blame. In general most Americans understand that the free market has brought us our tremendous freedoms. Yet the free market creates great world "in-equality". Our President and those that hold his world view will very seldom look to the free market for solutions to our economic needs. If this can be understood by Obama's opponents, their would be less confusion about his policies.
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