A Health-Insurance Solution

By Merrill Mathews, The Wall Street Journal
December 12, 2007; Page A18

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.

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