NCPA - National Center for Policy Analysis


April 9, 2009

Differing regulations and mandates among the states cause wide variations in individual health insurance rates.  The federal McCarran-Ferguson Act, which lets states set their own requirements for coverage, has protected state markets from competition, and led to an assortment of mandates -- many of which the insured do not want or need, say Devon Herrick, a senior fellow, and Ariel House, a junior fellow, both with the National Center for Policy Analysis.

For example:

  • About one-fourth of states require health insurance to cover acupuncture and marriage counseling.
  • More than half of states require coverage for social workers and 60 percent mandate coverage for contraceptives.
  • Seven states require coverage for hairpieces and nine for hearing aids.

In all, there are more than 1,900 state mandates across the United States.  Some legislators contribute to this excess by giving in to special interest demands that insurers cover their specific services and providers.  The result is higher premiums for consumers -- pricing an estimated one-fourth of the uninsured out of the market.  

Although most insurers operate in multiple states, their plans must be tailored to each state's specific requirements.  As a result, there is no competitive national market for individual health insurance.  Instead, there are fragmented markets and large price differences, say Herrick and House:

  • A family purchasing a health insurance policy in Wisconsin would pay about $3,087, but that policy would cost $10,398 in New Jersey.
  • A similar policy in Utah would cost $3,259, compared to $12,254 in New York.
  • A family policy in Michigan would cost $4,118, but an astronomical $16,897 in Massachusetts.

Thus, the difference in premiums is largely the result of state mandates that inhibit the creation of a national market, not regional variations in health care costs, explain Herrick and House. 

Source: Devon Herrick and Ariel House, "How to Make Health Insurance Affordable: 2008," National Center for Policy Analysis, Brief Analysis No. 630, April 9, 2009 (originally published September 09, 2008).

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