December 12,
2007, Council for Affordable Health Insurance
A Health-Insurance
Solution
By MERRILL MATTHEWS, The
Wall Street Journal
Why can't people living in New Jersey buy health insurance
available to residents of, say, Pennsylvania?
Rep. John Shadegg, an Arizona Republican, thinks they should --
and today will reintroduce legislation to make that possible.
The Health Care Choice Act would allow residents in one state to
buy health insurance that is available in and regulated by another
state. If enacted, the law would create a competitive, 50-state
market for health insurance, likely making it cheaper. It would do
this without imposing a large cost on taxpayers and without creating
a new government bureaucracy.
This should be a no-brainer for Congress. But a few years ago,
Mr. Shadegg went looking for a Democratic cosponsor for his bill. He
found one who initially signed on, then withdrew under pressure from
Democratic House leaders who wanted to dismiss the Shadegg bill with
the excuse that it lacked bipartisan support.
The health-insurance market can be divided into three segments.
The first consists of mostly large employers, with self-funded
plans, and are regulated by the federal Employee Retirement Income
Security Act (ERISA) and thus not subject to state regulation. The
two remaining segments of the health-insurance market are heavily
regulated by states: those that serve small-group plans (typically
covering two to 50 people), and individuals who pay for their own
insurance. Mr. Shadegg's bill only applies to the individual market.
Because regulations vary from state to state, the cost of health
insurance for these last two segments of the insurance market vary
widely. Some states ensure that residents have access to a wide
range of affordable policies. Others -- New Jersey, New York,
Massachusetts, for instance -- have all but destroyed their
individual health-insurance markets with over-regulation.
One of the most expensive state-level regulations is "guaranteed
issue," which requires insurers to sell insurance to anyone willing
to buy it, regardless of their health, or other factors that may
make it much more expensive to cover them. New Jersey, for example,
enacted guaranteed issue in 1994. At the time, a family policy could
be purchased in the state for as little as $463 a month or as much
as $1,076, depending on which of the 14 participating insurers a
family chose. Now there are just 10 insurance companies offering
plans in the state and the cost has soared to $1,726 per month on
the low end and $14,062 on the high end.
In New Jersey then, residents who buy their own insurance have to
pay at least $20,000 a year for the cheapest family policy.
Meanwhile, in neighboring Pennsylvania similar health-insurance
policies cost a third of what they cost in New Jersey. What Mr.
Shadegg wants to do is to let New Jersey residents buy what's now
for sale in Pennsylvania.
Mandates are another reason the cost of health insurance varies
from state to state. States impose those mandates on what an
insurance plan must cover -- such as chiropractic care or
mental-health services. The Council for Affordable Health Insurance,
which tracks mandates, estimates that there are more than 1,900
state mandates nationwide. These mandates can increase the cost of
health insurance by as much as 50%, which can then force residents
in many states to decide between "Cadillac coverage" -- insurance
that covers nearly everything and costs a mini fortune -- or no
coverage at all.
Typically, state mandates are justified by the belief that they
make health insurance more comprehensive. But consider this: Idaho
has just 14 state mandates, the fewest in the nation, while
Minnesota, with 63, has the most. Yet, the people of Idaho aren't
dying in the streets for lack of mandates.
Critics of the Health Care Choice Act claim that it would limit
the ability of states to protect their residents. The assertion is
that cross-state health-insurance purchases are a risky experiment.
In truth, millions of people already have access to health insurance
across state lines. Employees of large companies with plans covered
by ERISA are one example.
But there are others. Some small businesses cover employees
working across state lines. And, because people are mobile, some
people buy individual insurance in one state and then end up moving
to another. In many cases, they can take their health-insurance
policies with them. A person living in Pennsylvania with an
individual policy now could retain that policy even if he moved to
New Jersey. Premiums would likely increase, but they would be
cheaper than if he had started out with a New Jersey policy.
If states are worried about losing regulatory control over health
insurance, they might try making their regulations competitive with
other states. Health insurers would likely respond by returning and
offering a wide range of affordable policies. As it stands, many
states are "protecting" their residents right into the uninsured
camp.
The Health Care Choice Act won't solve every problem. But it
would increase competition and consumer choices currently denied to
residents in many states.
Mr. Matthews is executive director of the Council for
Affordable Health Insurance and a resident scholar with the
Institute for Policy Innovation.
To view our press release supporting Rep. Shadegg's legislation
click here:CAHI
Applauds Health Care Choice Legislation
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