Why Can’t the States Do This?

Friday, October 16th at 12:36PM EST

6 Comments

Recommenders: acat (Diary)

If the individual states have the authority to regulate which healthcare insurance can be purchased in their own state and this unavailability of choice for their citizens is a major cause of high insurance costs (and I believe it is), why, pray tell, doesn’t each state allow all insurance companies to compete within their borders, for the benefit of their own people? Would not this simple tactic be advantageous to all and, at the same time, help to forestall the looming government plan by addressing the topic of affordability? Or, am I all wet?

6 Comments Leave a comment

Actually, that's the way it should be.

Steph C (Diary) Friday, October 16th at 12:51PM EST (link)

What they’re doing with dictating which companies, etc are allowed to deal within a state is unConstitutional because it interferes with interstate commerce. However, the Constitution has been mauled so many times over the decades hardly anybody thinks about it.

“[I]f the public are bound to yield obedience to laws to which they cannot give their approbation, they are slaves to those who make such laws and enforce them.” –Candidus in the Boston Gazette, 1772
Hillbilly Politics

They do

Menlo (Diary) Friday, October 16th at 3:00PM EST (link)

There is no state law that explicitly prohibits any insurance company from competing. So long as a company abides by the state’s regulations, regardless of where that company is physically located, it is free to compete. The same half dozen or so big insurance companies do compete in most states. The choice in insurance is, IMO, at least as good as the choice in commercial air travel. LOL!

I suppose things can depend in part on how expensive it is for companies to follow a state’s regulations. In this sense, regulations may implicitly favor one or more companies over others. A fix for that is to seek the repeal of specific regulations in a state’s insurance code where the cost exceeds the benefit.

Otherwise, to address the monopolies that exist, the best solution would be for Congress to repeal the lone antitrust exemption that happens to be for insurance companies. But I don’t see any Republicans or Democrat leaders calling for that. Surprisingly, this exemption doesn’t seem to get much attention in the first place.

“The ultimate touchstone of constitutionality is the Constitution itself and not what we have said about it.” -Felix Frankfurter

The problem is the target demographic ...

acat (Diary) Friday, October 16th at 5:00PM EST (link)

Health insurance carriers don’t sell to Jane and Joaquin Q Public. They sell to corporate HR types, and will deign to talk to smaller mom-and-pop outfits. Private citizens? Nah, because the rates they have to charge for “pools” of 2-5 people (Jane, Joaquin, and their 2.3 kids) are much higher than they have to charge DynaTechnoCorp for their “pool” of 512 employees…

So, one fix would be to let the same plans, i.e. the same pools, get offered across state lines. This would save DynaTechnoCorp some bucks, but the real savings would be in the increase of pool size.

Another fix, that would be easy to implement, would be to market insurance to groups *other than* DynaTechnoCorp. Mosques come to mind, as do Synagogues and Churches. Sell Mosque of the Rock or Saint Martin’s Parish or Chaim Congregation a basic indemnity plan they can sell to their members.

Offer the same to any secular organization that requires confirmed membership. Model railroad clubs, pet owner clubs, etc.

The big problem? The administration. But, that’s because of the target market. Change the market, and maybe it makes more sense for the insurance companies to do more of the administration in-house.

Mew

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self-portrait

“All that is gold does not glitter, not all those who wander are lost”. –Tolkein

You'd lose your shirt due to adverse selection.

revivefederalism (Diary) Friday, October 16th at 6:25PM EST (link)

There are a lot of bureaucratic barriers to better health insurance, but there are valid business reasons that insurers offer group plans to employers. Aside from the economies of scale in selling, general, and administrative expenses, the nature of employment mitigates adverse selection issues.

People would look at the health care plans provided by the Methodist and Presbyterian churches in town and decide to become members of the church whose plan paid the most for their known (or known to be likely) ailments. It’s possible that some workers look over the insurance plans of prospective employers, but getting a job at a particular employer is far less guaranteed than being allowed to join a church.

Another part of the reason that health insurance is offered through employers is that it screens out people who are too sick to go to work. Furthermore, you can join a church at anytime. You generally have to wait for their to be a job opening to join a company. People would notice signs of disease and get themselves to church so that they could buy health insurance at the last minute. Can you imagine how much money an insurer would lose to people who signed up after learning the results of anonymous HIV tests? Isn’t it pretty obvious that an insurance company that offers plans to individuals and/or groups that are easy to join would have to charge more to cover its expenses.

If states wanted to make health insurance more affordable they could do so by allowing plans to provide exclusions of coverage and incentives for reducing high-risk behavior. If you play contact sports or drink a fifth of bourbon every day it doesn’t change your rates. The fact that people don’t pay the full consequences of their actions induces moral hazard. There are many ways that we could make health insurance more affordable, but they go against misguided feelings of ‘fairness’ and the delusions of politicians that they can impose their view of a perfect solution upon the world.

Here's the flaw in your argument:

johnminehan (Diary) Saturday, October 17th at 11:14AM EST (link)

a lot of small business/self-employed types already get their insurance through not-for-profits like the Chamber of Commerce.

The reason this approach doesn’t catch on (and eliminate the need for the Exchange that the Administration is talking about) is that if you want to become a Multi-Employer Welfare Arrangement (“MEWA”) to get the benefits of ERISA, you have to jump through numerous, onerous and expensive hoops. Since they aren’t a “plan,” these are just an “exchange” and you don’t get volume discounts, can’t design your Plan, still have pre-existing conditions issues that employment-based plans don’t.

People with pre-existing conditions (or who have dependents with pre-existing conditions) get employment-based coverage all the time. The issue is more spread risk than the pre-existing condition itself. The issue is also market power based on covered lives.

Well, Companies with ERISA

johnminehan (Diary) Saturday, October 17th at 11:05AM EST (link)

plans already can buy across state lines since ERISA preempts state insurance laws. Giving this same ERISA protection to not-for-profits (as you suggest) would work especially well.