The National Market Is Not the Savior of State Regulated Private Health Insurance

The Wall Street Journal “Ranks of Uninsured Fell in '07, Census Says” reports that the number of Americans without health insurance dropped to 45.7M in 2007 from 47M in 2006 due to an increase in government insured of 2.7M. Medicaid increased by 1.3M, Medicare by 1M and military healthcare programs by 400K. Americans enrolled in private health insurance policies decreased to 67.5% in 2007 from 67.9% in 2006.

Grace-Marie Turner’s Wall Street Journal editorial “We Need a National Market for Health Insurance” continues the theme. “The slide toward a government-dominated, taxpayer-supported health sector will continue unless the 45.7 million Americans who don't have insurance now are given more opportunities to buy private coverage.”

Turner goes through the standard litany of reasons why healthcare is unaffordable: state mandates, community rating, and guaranteed issue. She seals her argument by saying health insurance is three times more expensive in New York than Iowa. True, New York is a guaranteed issue state, but she neglects to also say that the cost of living is much higher for all goods and services in New York than Iowa.

Now let’s look at a fairer comparison. My limited research shows that Blue Cross premiums were not much different in New Jersey (a guaranteed issue, community rated state) than Florida (a medically underwritten state). Younger people paid a little more in New Jersey and middle age people paid the same or less. But everyone in New Jersey could sleep knowing they would never be turned down for health insurance.

Turner says state mandates increase the cost of premiums by 20% to 50%. I find that difficult to believe. The 80/20 rule would say that premiums are based on the number of high cost medical usage policy holders. Wouldn’t a reduction in the use of high cost drugs and high cost “latest technology” medical devices and imaging equipment have a greater impact on reducing costs? Introducing cost-benefit hurdles to American healthcare would do more to reduce premiums than eliminating state mandates.

Turner argues that only a national market for health insurance would create affordable premiums. Buying insurance based on another state’s regulation would allow Americans to avoid their states' mandates and save money. Notice Turner is not calling for federally regulated national standards for health insurance. She simply says shop the hodge-podge of 50 states’ regulations and find the cheapest premiums. Will people even know what their buying?

A model for Turner's approach currently exists and it’s a failure. National organizations can offer plans that do not meet Florida’s regulations to their members in Florida. They must disclose this to applicants. AARP offers United Healthcare (UNH) policies based on Washington DC regulations to Florida residents 50 and up. These plans do not guarantee renewability, a requirement of most states. What we have is less protection for no reduction in premiums.

In order for national market folks to have credence, they must normalize the cost of living differences in premiums between states. This is the only way to isolate the true cost of mandates.

Turner claims that guaranteed issue will incentivize people to game the system – only buy insurance after they are sick. Doesn’t this sound like the argument that it’s OK to hurt yourself as long as you prevent the other guy from getting away with it? Clearly cheating can be prevented by limiting allowable gaps between coverage after guaranteed issue becomes a federal regulation. This is not the same thing as mandates; it is simply requiring a minimum amount of previous coverage for the opportunity to avoid medical underwriting. In a free market system non-cheaters need the right to shop unencumbered for health insurance and change policies at will.

I would support Turner if she was calling for eliminating state regulation of health insurance and for implementing federal regulation, with consumer protections. To be completely fair, Turner should disclose if she gets her health insurance “guaranteed issue” from her employer, and if she has ever experienced medical underwriting.

WSJ: “Ms. Turner is president of the Galen Institute, a nonprofit research organization that focuses on health-care reform.”

Disclosure: Author is long UNH.

Comments

[Matthew Holt]

Turner cannot do basic math and her analysis of health care is always appallingly hilarious. When she talks about how great the market will be in sorting out the problems of health care, she trots out a bunch of solutions only used in traditional closed HMOs like Kaiser and countries like the UK. But of course if you're a right wing idiot then you'll get lots of columns in the WSJ to demonstrate that fact.