PrintNovember 20, 2010
Prescribing Health Insurance Reform
True reform comes not by socializing industry, but by spurring competition and empowering a natural market. Government intrusion strains growth, while mutually beneficial exchange increases production and cultivates business activity. Government extracts wealth from private parties with the intention to "level the playing field," but in reality, government destroys small businesses while forming gargantuan monopolies. As one of the most intensively controlled sectors of the U.S. economy, health care is becoming a public-sector industry, and if government intervention is not halted, bureaucrats in the state and federal legislatures will socialize every health care's every surface.
Under the current regulatory regime, consumers can do business only with insurers chartered in their residing state. So a citizen in New York cannot transact with an insurer licensed in Arizona -- where premiums may be 400 percent lower -- and a citizen in Arizona cannot transact with an insurer licensed in New York. This discriminates against citizens of highly regulated states, where premiums are generally much higher. Moreover, it limits consumer choice and weakens business accountability, as it eliminates small competitors and leaves consumers with only a few local insurance carriers to choose from.
State regulations -- particularly mandated benefits -- and insurance premiums share an explicit parallel: more mandates equal higher premiums, and fewer mandates equal lower premiums. With 52 mandates in Massachusetts, average annual premiums for single coverage in 2006 were $8,537, while the national average was $2,613.
In Idaho, with only thirteen mandated benefits, annual premiums were $2,006; Rhode Island, with seventy mandated benefits, had annual premiums of $4,412; and Utah, with 23 mandated benefits, had annual premiums of $1,574 [i]. Notice the trend? Mandated benefits substantially alter insurance premiums, as the majority of high-mandate states have annual insurance premiums well above the national average.
By reintroducing the health care market to nationwide competition, commerce would no longer be isolated within state boundaries. Interstate commerce would allow consumers to buy insurance from providers located in all 50 states, presenting them with more options, more versatility, and more cost savings. The competitive market would reach a whole new level.
Consumers could avoid unwanted costs by purchasing out-of-state plans, governed by diverse political representation and varying laws and regulations. So if a citizen in Rhode Island wants to avoid purchasing all seventy mandates in her state, she could purchase from an insurer regulated by Idaho, where only thirteen types of coverage are mandated [ii]. She could save on insurance premiums and have a plan better-aligned to her needs.
Interstate commerce would also stimulate competition among state governments inasmuch as a state with an anti-business environment, with high taxes, and with heavy regulation will lose revenue to other states. The result is a more transparent government and political representatives who serve their voters and constituencies with greater loyalty and respect.
Interstate commerce would generate a new wealth of information. Insurers would not only advertise benefits, but also inform the public on market trends and state policy, while private rating agencies such as Moody's and Consumer Reports would expose government dealings by publishing reports on new legislation. The costs of protected benefits would reflect premiums, allowing consumers to decide if the benefits warrant the increase in costs. Above all, providers would offer a more diverse range of products, catering to both consumers with high protection demands and consumers looking for affordable, less comprehensive health plans.
The Health Care Choice Act of 2009, sponsored by Representative John Shadegg (R-AZ), is the gateway to achieving interstate reform [iii]. Like nearly every other good or service, in nearly every other sector of the economy, Shadegg's bill would allow a free-flowing exchange of commerce -- in a national market. With most states dominated by only a few large insurers, interstate commerce would parade the industry with less concentrated markets and vigorous competition. Maryland, a heavily regulated state, is a prime example of how large, monopolistic providers scour small providers: between 1995 and 2004, the number of providers in Maryland dropped from 37 to nine, of which two now enroll 94 percent of the state [iv].
Isolated intrastate competition affects not only providers themselves, but all facets of health care, everywhere from doctors to hospitals to demographics and geography. The Health Care Choice Act would promote value and education to consumers while revolutionizing the functions and framework of health care -- through deregulated markets and widespread competition. Michael Porter of the Harvard Business School and Elizabeth Teisberg of the University of Virginia examined state regulated health plans and their confined borders:
Despite variation in quality and cost, geographic competition even nearby providers is severely circumscribed. Most patients are actively discouraged from seeking and securing the best value care, either because their health plan's choices are geographically constrained or because their doctor refers locally. The problem is most acute in rural areas, where there is rarely any local competition at all. But even when multiple providers are readily available, the mind-set of keeping the patient in the provider's own system usually prevails.[v]
Government transparency, lower procedural costs, improved quality and efficiency, and broad consumer choice are just a few perks of nationwide competition -- caused by lifting the competitive barriers among vast networks of health providers. Providers would compete across state lines, and in doing so, reduce costs, accelerate application processes, and offer more consumer options. While providers rival for greater market share, robust competition would emanate among hospitals, physicians, and specialized medical clinics. Interstate commerce would force providers to publish extensive health information, and consumers would act on this wealth of knowledge with their premium dollars. And lastly, vast markets with enormous consumer pools would reduce adverse selection and decrease costs for high-risk consumers.
[i] Mark Perry, "The Interstate Insurance Competition Cure," http://mjperry.blogspot.com/2009/08/competition-cure.html, August 2009.
[ii] Victoria Craig Bunce and JP Wieske, "Health Insurance Mandates in the States 2009," http://www.cahi.org/cahi_contents/resources/pdf/HealthInsuranceMandates2009.pdf.
[iii] "S. 1459, The Health Care Choice Act of 2009," http://www.washingtonwatch.com/bills/show/111_SN_1459.html.
[iv] The Maryland Health Care Commission, "Short and Long Term Strategies to Ensure the Viability of the CSHBP and The Small Group Market," Presentation of the Commission staff, September 15, 2005.
