What Are Republicans Talking about When Republicans Talk about ‘Buying Health Insurance Across State Lines’?

Ramesh Ponnuru’s defense of allowing individuals to buy health insurance across state lines has been getting sensible push-back from readers (here and here). As he points out, all the “fixes” that Republicans have put forward are supported by conservatives because they are meant to move us in the direction of individual ownership of health insurance.

So, does Congressional preemption of states’ powers to regulate health insurance within their boundaries move us in the right direction? I’m afraid not, certainly not as the Republicans are proposing. Unfortunately, the GOP’s Better Solutions platform continues the policy of discriminating against people who are employed, by forcing them to get health benefits of their employers’ choice, and not letting them use their own pre-tax dollars to buy individual, portable, guaranteed renewable, health insurance.

The Republican health-reform bill (H.R. 4038 § 221) also retains this discriminatory tax-treatment, but contains 27 pages of legalese that purports to make it easier for Americans to buy health insurance across state lines. Unfortunately, it makes little sense once you get past the crowd-pleasing title. For example: “The primary State for such coverage has sole jurisdiction to enforce the primary State’s covered laws in the primary State and any secondary State.” (A ”primary State” is where the issuer is licensed; and a “secondary State” is where the beneficiary resides.) So, Kentucky will enforce Kentucky’s insurance code in every other state where a business has bought Kentucky-licensed health insurance? Good luck with that.

Establishment Republicans are loathe to remove the discrimination against individual ownership of health insurance for employed people because their backers in Big Business support the status quo. The politician who advocates amending the tax code (like Senator McCain did in his presidential campaign) jumps into a buzzsaw wielded by the U.S. Chamber of Commerce, the ERISA Industry Committee, America’s Health Insurance Plans, etc.

So, the Republicans fall back to work-arounds like the interstate purchase of health insurance, and association health plans. Look, none of these things are wrong, but they are far less important than individual ownership of health insurance (through tax reform). Nor is it evident that Congressional legislation is necessary, or advisable, to achieve them.

Let’s look at another example: Suppose you travelled to a parallel USA, where the tax code was malformed such that workers’ homes were owned by their employers (using non-taxable dollars). If your employer’s HR department changed HMO (Home Maintenance Organization) annually, you’d have to move house every year. If you got a new job, even across the street from your old office, you’d have to switch jobs. Obviously, housing costs would be out of control and there would be huge bureaucracy and lack of responsiveness in the “system.”

Consider three reforms:

1. Reform the tax code so that individuals can use pre-tax dollars for their own housing (through, perhaps, a mortgage-interest tax deduction);
2. Allow employers to use HMOs that were regulated in another state where the building code was not so strict; or
3. Allow small employers to band together in “association housing plans” so that they could get the same discounts on commissions, etc., as large employers.

Surely, everyone in this America, where people choose their own homes, would immediately dismiss the latter two policy options in favor of the first (which is also imperfect).

So, when the Republican party throws up “interstate purchase” of health insurance, I believe that it actually misdirects us from the most important reform.

Even more importantly, reforming the tax code to allow employees to keep health insurance of their own choice will (almost) surely lead to effective interstate purchase of health insurance without Congressional action. There is no Congressional law mandating interstate purchase of auto insurance or life insurance, but nobody worries about what will happen to their auto or life insurance when they move between states. States figured it out through a number of mechanisms, including the Insurance Compact.

If Congress allowed individuals to use pre-tax dollars to buy health insurance of their own choice, not their employers’ choice, states which refused to collaborate with other states in making regulations that ensured a seamless portability of health insurance would see no immigrants from other states.

Ronald Reagan is reputed to have made policy choices according to a simple rule: “Does it increase liberty?” Well, which health reform increases liberty most? One which increases employers’ choices, or one which increases individuals’ choices?

— John R. Graham is director of Health Care Studies at the Pacific Research Institute.