Rx: The Interstate Insurance Competition Cure
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Rhetoric about monopoly notwithstanding, Congress's reform proposals are not designed to increase competition in private health insurance. The House bill proposes a government-run insurer. The Senate Finance Committee proposes creation of quasi-public cooperatives. Both bills (and the Senate HELP bill) include restrictions on health insurance underwriting, pricing, profitability and policy design that would essentially turn private health insurers into regulated public utilities.
If the goal were to promote robust concentration in private health insurance, Congress would focus on reducing impediments to competition. It could do so by allowing consumers to buy insurance across state lines at terms that do not require them to subsidize other buyers or to buy coverage for state-mandated benefits they are unwilling to pay for. Congress could also eliminate tax and regulatory rules that favor employment-based coverage over individual coverage.
~Scott Harrington in the Wall Street Journal
All of this talk of health reform in Washington has created the illusion that we have a single health care system in America with prices that are roughly similar once adjusted for local costs of living. But in fact we have 50 different health care systems. Our states, through their insurance commissioners and legislatures, exercise enormous influence over the shape of health insurance by mandating to residents and businesses what kind of coverage they must have, and to insurance companies what kind of illnesses and therapies they must cover. The result is sharply different rates across the country.
~Steve Malanga in Real Clear Markets
MP: The chart above shows the wide variation in average annual insurance premiums among selected states, according to a recent study from America's Health Insurance Plans. The average annual premium for individual coverage was $2,985, but ranged from a low of $2,606 in Iowa to $6,630 in New York. Family coverage ranges from $5,120 in North Carolina to $13,296 in New York.
In other words, allowing interstate competition for health insurance would allow families in New York to save more than $8,000 by buying insurance from a provider in North Carolina. That seems like an attractive option for New York residents, even if they have to accept a lower level of medical coverage for the $8,000 savings.
Instead of new massive government interventions in the U.S. health care system, maybe the best cure is to simply allow interstate competition for health insurance.
