NCPA - National Center for Policy Analysis


March 9, 2010

If you live in Texas, the only health insurance you can buy is insurance regulated under Texas law.  But if bills before Congress (most notably, one sponsored by Arizona Republican Congressman John Shadegg), are enacted, Texans would be able to buy insurance regulated, say, by the laws of Virginia, or the laws of Delaware, or 47 other states, says John C. Goodman, President, CEO and the Kellye Wright Fellow of the National Center for Policy Analysis. 

Proponents claim this would greatly increase competition.  Opponents claim it would undermine "consumer protections."  Both claims are mainly wrong, says Goodman.  We should not expect the number of insurance companies trying to sell us insurance in Dallas, Texas to change at all, he explains.  And if we are worried about consumer protections, we could continue to buy Texas-regulated insurance, just as we have before. 

One thing that would not survive 50 state regulatory regime competition is guaranteed-issue and community rating in the individual market, says Goodman: 

  • In the six states that impose such requirements the vast majority of people who are relatively healthy are overcharged so that the small percent who are sick can be undercharged.
  • This form of private sector socialism would quickly dissolve, as the healthy sought cheaper insurance under other regulatory regimes. 

This would be a good outcome for healthy people because lower premiums would encourage the uninsured to buy insurance, says Goodman.  But would people with pre-existing conditions (who remain in shrinking pools with rising per capita costs) be unfairly burdened? 

  • The solution that would face the least political resistance would be to exempt these six states from the proposal, unless they opt in.
  • But a better solution would be for states to find more rational ways of subsidizing the care of high-cost patients. 

According to University of Minnesota economists Steve Parente and Roger Feldman: 

  • Cross-state purchasing of health insurance would induce 12 million more people to obtain health insurance.
  • That number would double if tax subsidies for health insurance were equalized -- thus insuring 80 percent of the number of uninsured people the Senate (ObamaCare) health bill aims to insure -- without any net cost to the federal government. 

Source: John C. Goodman, "Should We Be Able to Buy Health Insurance Across State Lines? " National Center for Policy Analysis, March 8, 2010. 

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