In the State of the Union address, President Bush came out strongly–and not for the first time–for “association health plans.” What, you ask, are association health plans? (If you don’t ask, I’ll tell you anyway.) AHPs are a way for small businesses to pool together to offer health insurance to their workers. Federal law lets big businesses get health insurance for their workers without having to comply with state regulations. So if Arkansas has said that health insurance has to include coverage for in vitro fertilization–which it has–large employers can decide their employees would rather buy a different package of benefits. The “Small Business Health Fairness Act,” which Bush was touting, would let small-business trade associations offer insurance to their members on the same basis.
The bill has a fair amount of bipartisan support. Small-business lobbies are enthusiastic about it, especially since it would allow them to sign up new members by offering them health insurance. State regulators are, of course, against the bill. But the muscle behind the opposition comes from Blue Cross/Blue Shield, which fears losing its strong position in the small-business market. For years, the Blues opposed state mandates as special-interest giveaways that raised the cost of insurance, increased the number of people without insurance, and overrode consumer wishes. Now that the Blues face the prospect of having to abide by these regulations while AHPs would not, they have decided that the regulations are “important consumer protections.” (This may put them in a tricky position. How will Blue Cross lobbyists be able to resist a new mandate in one state while insisting that the very same mandate is absolutely vital in another?)
The Congressional Budget Office, rarely a fan of free-market ideas on health care, reported a few years ago that AHPs would not make a large dent in the problem of Americans without insurance. Since AHPs would not have to abide by state mandates, they would supposedly offer only stripped-down coverage that nobody would want. Senator Jim Talent, the chief congressional backer of AHPs, replies that by that logic nobody who works for a large company would have health insurance either. (Remember, they’re exempt from the state mandates too.)
While the bill has liberal sponsors, not all liberals are wild about it. Writing at the New Republic earlier this week, Jonathan Cohn trashed AHPs. He buys the CBO’s analysis. He thinks that the states regulate health insurance purely for the public good–and never, say, just to provide a payoff to a provider lobby–and that their regulation has the effect of advancing the public good. Given these assumptions, his conclusion is reasonable enough.
The bill has some conservative opponents, too. A few months ago, I wrote a column for NRO making the case for AHPs. I let Senator Talent argue that they were compatible with federalism: The federal government would simply be knocking down barriers to interstate commerce–in this case, letting people from different states get around state regulations that kept them from buying insurance together.
I soon learned that the conservative objections to the bill were stronger than I had considered them to be. Michael Cannon, a friend of mine and a senior fellow at the National Center for Policy Analysis, e-mailed me his objections. First, he argued, switching from state to federal regulation would lower costs in the short term but could increase them in the long term. Provider lobbies that had triumphed in the state capitols would just move their operations to Washington. (I had brought this point up with Senator Talent, actually, and not gotten a great response.)
Cannon thinks there’s a better idea: reviving an old bill by Kentucky Republican representative Ernie Fletcher (who is now his state’s governor) to let people buy insurance from any other state–and thus, at the same time, buy that state’s regulatory regime. If you don’t like the mandates in your state, you would be able to buy insurance from a state with less onerous regulations. If, on the other hand, it’s really true that people would not want cheap no-frills health insurance, they may prefer to stay in high-mandate states. I think it’s more likely that a choice-based approach would exert pressure against state overregulation.
The AHP bill, on the other hand, might increase the pressure for federal regulation. It is true that a choice-of-law policy would, in a sense, give up the cost advantages of creating a national pool. But a national pool could in theory emerge anyway if the market evolved that way. (If some state, for example, became what Delaware is for the law of corporate chartering.) So bring back Fletcher’s bill. It would be good for health care, and it could be a model for deregulation in the future.