Health Care Across State Lines (2009 Dec)

by Barry A. Liebling

The Democrats dominate both houses of congress and some version of ObamaCare is likely to become law. The details of the legislation will not be known until it is passed, and the smothering effects it will have on Americans will not be realized until it is implemented. The bottom line is clear, however. ObamaCare will put either more or much more control of health care into the hands of government.

Democratic partisans label Republicans who oppose ObamaCare as “the party of no” – railing against “reform” but having no viable counter-proposals. To this charge some Republicans assert that an obvious move toward “real reform” is to permit individuals and businesses to buy health care insurance across state lines.

In 1945 the McCarran-Ferguson Act put the health insurance business under the control of each individual state. State governments have the power to decide which companies can provide insurance, mandate what will be covered in policies, and what the premiums for coverage will be. In some states – such as New York where I live – health insurance is very expensive largely because there is a long list of mandates. In other states – where fewer mandates are in force – it is possible to purchase more economical plans.

The idea of allowing health care insurance to be sold across state lines is a step in the right direction. After all, why not have consumers and businesses shop around for the best deal they can get? Policies that increase individual freedom are welcome. Unfortunately, there are powerful interest groups who will fight vehemently to prevent interstate health insurance from becoming a reality. Furthermore, even if interstate health insurance were made legal the market would be far from free.

Consider the vested interests who are benefitting from state-controlled health insurance. Mandates for specific health care services is the meddler’s alternative to mutual consent. For example, in a free market chiropractic services might – or might not – be included in a health care plan. Consumers interested in purchasing coverage would be free to find a supplier that offers it. The price of having a plan that covers chiropractic services would depend partly on how many consumers choose to buy it. The larger the pool, the less expensive the coverage. Of course, some consumers are not interested in this service and would not want to participate.

When mandates are on the table lobbyists representing chiropractors, consumers who want the service, and insurance companies bargain with state legislators. If they see a political payoff the state officials rule that health plans must cover chiropractic services. Chiropractors benefit because every consumer who is insured in the state is a potential client. Consumers who want to be treated by a chiropractor are automatically covered. The insurance companies can now collect premiums from all customers – even those who would never go to a chiropractor.

Of course not everyone benefits. Consumers who have health insurance but are not into chiropractic therapy pay higher premiums because of the mandate. And the mandate cycle is repeated as many times as the politically connected can make it happen. There may be mandates for many other services – such as physio-therapy, nutritional counseling, addiction treatments – all of which benefit special interest groups and legislators at the expense of everyone else.

If you make it legal for consumers to buy health insurance across state lines the special interest groups will howl. Their government-enforced privileges are not to be messed with.

Consider the insurance companies. As things stand now each is protected from competition with out-of-state rivals. Whenever a new company proposes to do business within a state there are formal procedures to decide whether an additional vendor is “needed.” Existing suppliers, or their lobbyists, typically have a seat at the table to make sure there is no “wasteful glut” of insurance providers. Notice that if consumers and businesses could shop anywhere they wish, insurance companies in “expensive states” would lose customers. Not only would their revenues go down, but the cost of writing policies with unpopular mandates – such as chiropractic services – would go up. They would then approach state government officials to explain why they need to raise rates.

What about chiropractors who are benefitting from the mandate? As more people decide to buy a less expensive out-of-state policy, chiropractors may find they have fewer potential customers. These health care providers would be sure to speak up.

And the prime actor in state-managed healthcare is the state itself. If consumers can buy health insurance anywhere, the “high cost” state will be in the uncomfortable position of losing health care taxes and fees. Also, state officials will have a more difficult time delivering goodies to the pressure groups that help fund their re-election campaigns. Surely they will use every trick available to thwart legalized interstate health care insurance.

Suppose, contrary to prevailing trends, legalized interstate health care insurance comes to pass. What could the entrenched powers do to preserve their turf? They could argue that consumers and businesses have to be protected against cheap, sub-standard health care policies. Therefore federal mandates – which apply only across state lines – are needed to assure that no one is stuck with a chintzy policy. The federal mandates could be made so costly that people in “expensive states” would not be tempted to abandon their insurance. Then when insurance rates do not go down, crafty politicians could say “I told you it wouldn’t work.”

The free market solution to the mess is easy to envision but politically difficult to implement. Let anyone buy health insurance from any company that is willing to provide it. Do away with all mandates. Restrict the government to its proper role of preventing fraud in health care. The bottom line of this policy is clear. It would put either more or much more control of health care into the hands of individuals.

*** See other entries at in “Monthly Columns.” ***

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