WASHINGTON -- In general, the most expensive health insurance market is the individual market. Thanks to lots of bad state government regulations, the cost of individual policies is often out of reach for many consumers or, if you are young and healthy, not worth the price. Rep. John Shadegg of Arizona has introduced a bill called the Health Care Choice Act that would provide some relief.
Suppose a consumer living in New Jersey does not want to buy insurance in his state, where the average annual premium for an individual is $4,080, but would rather buy it in Wyoming, where the average is $1,284. Currently, he cannot. A Wyoming company must first set up shop in New Jersey, which means going through the regulatory process in the Garden State. Since, as Merrill Matthews of the Council for Affordable Health Insurance states, "New Jersey is the poster child for how not to reform the health care system," there is little chance that the Wyoming company would want to deal with New Jersey's regulatory miasma.
Under the Shadegg bill, the insurance company would only have to designate Wyoming as its "primary state," meaning that only the insurance regulations of Wyoming would apply to any policies it sold. It could then sell in New Jersey as long as it notified that state that it was intending to sell there, provided the state with copies of all policies it intended to sell, and filed periodic financial statements with the state.
Shadegg's bill would give consumers more choices and enable more people to afford health insurance. It would also lower health insurance prices by increasing competition in the health care market and expanding the total number of people buying insurance. Of course, like any plan that expands liberty, empowers consumers, and limits government, Shadegg's bill has drawn plenty of opposition.
The opposition has focused heavily on the supposed loss of consumer protections that would result. According to Mike Kreidler, Washington state's insurance commissioner who testified on behalf of the National Association of Insurance Commissioners:
...most States have enacted laws limiting preexisting condition exclusions. Many States have implemented rating limits to ensure the higher costs of sicker consumers are spread across the population. Some States have created reinsurance mechanisms to spread risk among insurers. States have also enacted important consumer protections to ensure access to providers. [Shadegg's bill] would undermine all of these protections, wiping out any progress that has been made on behalf of consumers.
However, such protections hurt consumers by making insurance more expensive. For example, the rating limits that Kreidler speaks of, called "community rating," require insurance companies to charge every customer the same price -- the average price in a particular community. The result is that younger, healthier people who would pay a lower price in a market without community rating decide not to buy insurance. As they drop out of the health insurance market, the price of health insurance climbs higher for everyone who remains in it.
The question that Kreidler and his ilk never address is how protected are consumers when consumer protections make the product increasingly unaffordable? But for Kreidler, it's a matter of bureaucrats, not consumers, knowing best: "Unlike group insurance consumers, individuals shopping for coverage do not have the sophistication of an employer when making coverage decisions," he testified. "Consumers in the individual market need the protections afforded by State regulation."
MANDATES ALSO INCREASE THE COST of insurance. A mandate is a state regulation requiring an insurance company to cover specific health care providers, benefits, or patient populations. These include things like pharmacists, physical therapists, mammograms and kidney disease, but also acupuncturists, lay midwives, Chlamydia, and port-wine stain elimination. Have a healthy head of hair? Well, if you live in Connecticut, Massachusetts, Maryland, Minnesota, Missouri, New Hampshire or Oklahoma, you are out of luck. You must buy a policy that covers hair prostheses (wigs). Estimates vary, but such mandates can add anywhere from 5% to 50% to the cost of an insurance policy.
The Blue Cross-Blue Shield Association (BCBSA) once spent a good deal of effort fighting mandates. For example, when Virginia tried to require insurance companies to cover contraceptives, Virginia Blue Cross-Blue Shield claimed that it "wasn't needed because employers can offer the benefit if they are willing to pay for it." In 1996 some members of Congress tried to impose mandates nationally. Calling the proposal "alarming," BCBSA asked, "The fundamental question is, do you want a private health-care system to work or do you want to have it heavily regulated?"
When it comes to the Shadegg bill, BCBSA's answer seems to be "heavily regulated." BCBSA warns that under the Shadegg bill consumers "would lose all of the protections by their state of residence as well as those of the primary state (i.e., they couldn't be enforced)." Why the change in attitude toward regulation? Because Blue Cross-Blue Shield is a major player in the state market, with about 93 million members. It could do without the increased competition it would likely face if Shadegg's bill became law.
The fact is nothing in Shadegg's bill is particularly earth shattering. Thanks to the federal Employee Retirement and Income Security Act, large companies that can self-insure are exempt from state regulations. Such plans cover 48 million Americans. As Merrill Matthews notes, "consumers are already searching for new and innovative ways to purchase health insurance." One such way is an "association health plan," in which an individual can buy insurance if he belongs to an association like the Chamber of Commerce. "States impose some oversight on these policies, but most impose far fewer restrictions and regulations on association group insurance than they do on a traditional insurance policy sold to individuals," Matthews says.
The Health Care Choice Act would introduce more competition into the individual health insurance market and allow consumers to decide how much government regulation they want. Little wonder that big insurance carriers and bureaucrats oppose it.
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