Friday, December 14, 2007

Should the U.S. Consider "The Health Care Choice Act"?

The U.S. healthcare insurance industry has a variety of issues impacting both cost and availability. One issue that is seldom mentioned is that although interstate commerce in goods and services is fairly routine in most other areas of the national economy (including banking and financial services, since the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, anyway), the insurance industry, and more specifically the healthcare sector is governed by a confusing patchwork of various state laws and inconsistent government regulations, all of which impacts costs and availability. This means that individuals and families are unable to secure the kind of coverage they want at the prices they wish to pay, and companies struggle with how to offer coverage that addresses the mandates required by many different states.

Legislation called The Health Care Choice Act has been introduced repeatedly since 2005, but wasn't voted on, so the bill therefore died in the House and/or Senate, or in previous iterations, failed to secure sufficient support to pass. Think about this for a moment, and consider what happens when different laws across states exist. Before Gramm-Leach-Bliley existed, banks were regulated at the state level. Thats one reason most credit cards come from banks chartered in Delaware, South Dakota, or more recently, Arizona. The reason is that in the 1970's, those states had no interest rate caps and low taxes on banks, which made them attractive for bank holding companies to charter their credit card divisions in those states, and Supreme Court decisions enabling banks to "export" card terms to other states paved the way for that to happen. But the real impact was a standardization of practices across the industry, rather than banks in California being governed by one set of laws and banks in New York governed by another set of laws. The fact that American consumers will have received some 8.5 billion credit card solicitations during 2007 suggests that it is a competitive market. Having a national marketplace for healthcare insurance would likely introduce competition to a market that is largely uncompetitive today.

Compare that to the current situation. Suppose you wish to buy a healthcare insurance policy (assuming for a moment that you don't need to worry about preexisting condition exclusions). It is known that in addition to rates varying from one part of the country to the next, there are also various state coverage mandates on healthcare insurance, which force buyers to pay more for insurance - or else go without insurance at all. According to a study undertaken by the Council for Affordable Health Insurance, in 2006, state laws and regulations included, nationwide, some 1,824 benefit mandates. The number of mandates varies considerably. For example, Idaho only has 13 mandates, while Minnesota imposes a whopping 62 mandates. To add to the complexity, no two states impose the same set of mandates. One of the better known mandates requires insurers to cover diabetes supplies (which at last count was mandated in something like 45 states). While critics complain that mandates like this raises costs for those who don't need these services, there is plenty of this type of unfairness to go around. For example, more than 40 states mandate coverage of adopted children. For those who do not adopt children or have no children at all, this type of mandate is seen as wasteful.

There is no denying that having a national market for healthcare insurance would almost certainly create a "lowest common denominator" effect, but this would nevertheless enable policies to be more uniform on a national scale, reduce administration cost of complying with 52 sets of different laws (including Puerto Rico and the District of Columbia). Decisions regarding mandates could be decided on a national level, rather than having inconsistent coverage because we have crossed state lines. The net impact could be a reduction in costs, which virtually everyone acknowledges is badly needed.

Personally, I think we should be exploring this and other possibilities. While Congress wants to move on the Wired for Healthcare Act, which would create electronic health records for every American, aside from the security concerns and the lack of dispute resolution processes, there is absolutely no clinical evidence that this type of legislation will reduce costs or reduce errors as that bill's supporters claim. But we do know that having a national marketplace for insurance does reduce costs and standardizes availability. This alone will not solve the nation's healthcare crisis, but it most certainly will contribute towards addressing the numerous problems with ever-escalating costs which now exist. At the very least, it deserves an honest look and discussion.

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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Jenny said...


This is a trojan horse introduced ty the health insurance industry to get around the regulation in states that prevent abusive insurance companies and policies in their states.

I had a very bad experience in CT where the insurers own the legislature. Yes, I could get insurance not available in Massachusetts, but that was because the insurer had a long history of REFUSING TO PAY CLAIMS WITHOUT A LAWSUIT. I had first hand experience of this. The company bragged about this policy in the Wall Street Journal. They only paid 50% of the claims that I submitted which were all legitimate. They said ALL hospitals in my county did not charge "customary" charges and refused to pay them, leaving me with the bill.

Insurance in Massachusetts is more limited, but all policies must pay claims and must cover people without discriminating for previous conditions--which is one way abusive insurers avoid payment.

One Texas insurance company, for example, refused most claims with the argument that the person had had a previous condition, even if that condition was something minor discovered on admission for a stroke that the company should have covered. I documented this in one of my books for the self-employed.

DO NOT GET FOOLED. When the insurance industry says it wants to broaden coverage, they usually mean they want to get around state laws that limit practices like refusing coverage for pregnancy, imposing very long wait periods, defining preexisting conditions abusively, and refusing to pay claims arbitrarily.

Since moving to MA I've paid more for my insurance, but I have never had a single charge refused and I have never had a moment of concern that I would not get coverage because of any diagnosis for me or my family. If insurers operating in Connecticut were allowed to sell insurance in MA that would come to a dramatic and painful end.

Scott S said...

Personally, I have mixed feelings on this. Although I see it as a GOP plan to claim they are doing something to address the healthcare crisis, the reality is that it does not put affordable healthcare in the hands of millions who need it. However, I do think that open markets have a mechanism that does encourage more efficiencies than the system we have today does.

In short, I do think this is worthy of an honest discussion and our elected representatives need to honestly consider the merits (and the downsides). Like anything, the devil is in the details, but thats not necessarily an endorsement of the plan.