NCPA - National Center for Policy Analysis


August 24, 2009

If competition in the health care marketplace is the goal of the Obama Administration, then we should let insurance companies sell health care policies across state lines, says the Wall Street Journal.

This excellent idea has been before Congress since at least 2005, when Rep. John Shadegg of Arizona proposed it.  It came up again recently in an exchange between Chris Wallace of Fox News Sunday and John Rother, executive vice president of AARP:

  • According to Wallace, if you really want competition why not remove the restriction which now says that if you live in Washington, D.C., you've got to buy a D.C. health plan?
  • Rother believes that if there are states and localities where health care is much less expensive than others, and if we allow people to buy all their insurance from those places, it will raise the rates there.

How did Rother arrive at his conclusion?  

  • His claim assumes that what makes insurance expensive in places like New Jersey -- where the annual cost of an individual plan for a 25-year-old male in 2006 was $5,880 -- is merely the higher cost of medical services in the Garden State.
  • He sounds an alarm in the rest of the country by suggesting that an individual living in, say, Kentucky -- where an annual plan for a 25-year-old male cost less than $1,000 in 2006 -- would be asked to subsidize plan members living in high-priced states.

But that's not how interstate insurance would work, says Devon Herrick, a senior fellow with the National Center for Policy Analysis:

  • Insurance companies operating nationally would compete nationally; the reason a Kentucky plan written for an individual from New Jersey would save the New Jerseyan money is that New Jersey is highly regulated, with costly mandated benefits and guaranteed access to insurance.
  • 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.

A 2008 publication "Consumer Response to a National Marketplace in Individual Insurance," (Parente et al., University of Minnesota) estimated that if individuals in New Jersey could buy health insurance in a national market, 49 percent more New Jerseyans in the individual and small-group market would have coverage.  Competition among states would produce a more rational regulatory environment in all states.

Source: Editorial, "The Competition Cure," Wall Street Journal, August 24, 2009.


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