Why Not a National Health Insurance Market?

Trying to “fix” health care is not easy, since it’s a bizarre amalgam of private provision of insurance and public spending and regulation, completely distorted by the counterproductive incentives of pervasive third-party payment. But one very simple step would be to simply have a national market in health insurance. Explains Merrill Mathews of the Council for Affordable Health Insurance in The Wall Street Journal (subscription required):

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.