NCPA - National Center for Policy Analysis

INTERSTATE SALES OF HEALTH INSURANCE

January 27, 2005

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 percent co-insurance) across the nation's 50 largest cities, involving some 4,000 insurance plans and 140 insurance companies.

Some results are startling, says David Gratzer, a physician and a senior fellow with the Manhattan Institute:

  • 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.
  • Unpublished data on the small group market -- which serves smaller companies -- also suggests great variability: Similar HMO coverage for a business in New Jersey is a third more per employee than in California.

Why the price difference?

  • Many states dictate the type of services and providers: acupuncturists are mandated in 11 states, massage therapists in four, osteopaths in 24 and chiropractors in 47, driving up the price of even the most basic insurance plans.
  • Some states have gone further with laws that force insurers to sell to any applicant (guaranteed issue) and at the same price, regardless of age or health (community rating).

A remedy would be for Congress to allow interstate sales of health insurance, says Gratzer. 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.

Source: David Gratzer, "Simple, but Effective," Wall Street Journal, January 25, 2005.

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