Is the solution to the nation’s health-care mess more federal involvement, or is it time for state policymakers to take the bull by the horns? Noah Clarke and Dr. Eric Novack advocate states act now by injecting cross-state competition in “Health Care Choice,” a new Goldwater Institute Policy Report.
Currently, individuals can only purchase health-insurance policies approved by the state in which they reside. Clarke and Novack advocate a back-to-economic principles approach: Inject market competition into the health-care industry by letting individuals purchase policies across state lines. Congressman John Shadegg (R., Ariz.) has proposed federal legislation that would allow health-insurance companies to sell in any state as long as they complied with home state regulations. But states don’t have to wait on Congress; they can open their health-insurance markets unilaterally.
Current federal policy battles the basic economic law that when something is artificially made free, or less expensive, more individuals demand the good or service, regardless of what it costs. When Medicaid was previously expanded, between 50 and 75 percent of new enrollees had been privately insured. In other words, why pay for a chocolate bar when somebody is giving it away?
Cross-state health-insurance competition would bring costs down. Average annual health-insurance premiums for individual policies in the U.S. stood at about $2,711 in 2004-05. The average premium in Wyoming was $2,734. In California, it was $1,885. Surely, buyers of health insurance policies in Wyoming would benefit from being able to purchase plans otherwise exclusively sold in California.
One reason that might explain California’s low average policy rate compared to Wyoming is California’s larger potential insured pool. By allowing cross-state competition, buyers would be free to jump into bigger pools and, in a sense, they could take their pools with them.
Beyond restricting the health-insurance industry from expanding beyond their home state, mandates are another reason for the variations in costs across states. Different states mandate coverage of different maladies. For example, 44 states require that alcoholism be covered by health policies. Teetotalers might find it advantageous to buy a policy issued in a state that does not have such a requirement — especially in the presence of cross-state competition.
Right now, if an individually-insured person moves across state lines, he faces the specter of losing insurance coverage. There might be preexisting conditions that would disqualify a previously insured individual from getting a policy in a different state. Cross-state health-insurance competition would prevent this from happening because your policy could move with you.
The health-care crisis the nation faces today was created in stages. Our answers to solve the health-care question in the past have often revolved around what government should do rather than how patients can be empowered to do for themselves. Without fail, the government approach has led to the price of health care rising considerably faster than the patient’s ability to pay.
Common sense says that when you’re in a hole, stop digging. That means stop thinking health care should be immune from the laws of economics. Competition across states in the health insurance market would be an excellent first step toward bringing more affordable health insurance and economic rationality back to the health care market.
– Byron Schlomach is the director of the Center for Economic Prosperity at the Goldwater Institute.