Of all the various Republican health care reform ideas, the most popular by far is letting people buy health insurance across state lines. It polls off the charts, provokes spontaneous applause in town hall meetings, is the talk of conservative policy wonks and state lawmakers, and features in virtually every serious Obamacare-replacement plan.
The idea of letting citizens buy their own health insurance online in a great national market, just as they do now with life and auto insurance, is wonderfully compelling. What could be more appealing than forcing health insurance companies to compete on a continental basis? Certainly, they could stand more competition: in many states, one or two big insurance companies control the entire market — monopolies in all but name.
But there’s a problem (or rather three). The favored GOP approach to promoting interstate competition 1) wouldn’t actually promote competition; 2) it’s also arguably unconstitutional; and 3) it’s unnecessary. But other than that, it’s great.
Republicans speak as if their goal is to promote competition between insurers (good), but what their bills would actually do is promote competition between state regulators (hmm). Many conservatives blame needless state insurance requirements — such as mandatory maternity services for single men — for driving up insurance costs. If there were fewer mandates, there would be lower costs, right? So why not pit states against each other? Enable the citizens of, say, Maryland, a high-mandate state, to buy a policy issued in, say, low-mandate Idaho? State mandate-mania, and prices, will drop. Or so the theory goes.
Unfortunately for the theory, it’s based on some false assumptions.
For one thing, it assumes that there is currently a national marketplace for things like auto and life insurance. There isn’t. In the US, “national” insurance companies like Geico and Progressive are really networks of state-based companies. When you buy insurance, you’re buying it from a company domiciled in your state, licensed to do business in your state. If you want a better deal from another state, you have to physically migrate to that state. But the good news is when you do, you can usually transfer your coverage fairly easily. Say you buy auto coverage in Virginia, and then move to Colorado. Geico of Virginia hands you off to Geico of Colorado with a few mouse-clicks. Happily, state legislatures have worked to make these sorts of handoffs seamless, by harmonizing their insurance laws.
Yes, some states have over-regulated their health insurance markets. Badly. So why not allow customers to vote with their keyboards instead of their feet? To understand why that’s not a sound idea, in our system, consider a thought experiment. Imagine if we let people pick their “governing state” with respect to taxes instead of insurance. I could, for example, opt to pay South Dakota’s dirt-cheap tax rates while still living, and using the roads and police, in high-tax New York. Why would New York stand for that? Why should it? Under our Constitution, state sovereignty isn’t a suggestion, it’s the law.
Notice how nobody clamoring for interstate purchase of auto and life insurance. That’s because those markets work pretty well, and that’s because the coverage is individually owned. Most health insurance, alas, is not. Most Americans don’t actually own their health insurance; they participate in a prepaid group health benefit plan, usually provided through an employer or the federal government. By definition, such a plan isn’t portable because of who owns it.
Half the US population relies on employer-sponsored group health benefits, not because of state mandates, but because of federal tax subsidies for employer-sponsored group health benefits. End those subsidies, and more Americans will own their health insurance, and it’s a sure bet health insurance will begin to look more like auto and life.
Another false assumption: that the feds are more benevolent than the states. Hokum. The feds are worse. Misguided laws like ERISA (1974), HIPAA (1996), and of course PPACA (2010) have subjected more than half the US population to federal in lieu of state regulation, with no net relief.
Today, a mere 5 percent of Americans obtain their health coverage in the true insurance market. The feds, not the states, are the culprit. Why would Republicans think the cure for federal over-involvement in health care is more federal involvement in health care?
Serious health reform packages have been introduced by, among others, Congressmen Phil Roe (R-TN), Tom Price (R-GA), and Paul Broun (R-GA). All three are physicians, and I think all three would describe themselves as “strict constructionists.”
In their respective state-lines bills, which incidentally run to nearly 30 pages, all use basically the same language: they authorize private insurance companies to offer contracts in any state, so long as they inform their out-of-state customers that the contract will be governed by the laws of the company’s home state (the “primary” state) and not those of the customer’s state (the “secondary” state). Pretty simple.
But where does Congress get the power to do this? The Commerce Clause? Insurance is a contract, not commerce. It’s certainly not commerce in the sense of “physical exchange of goods.” If it is commerce, it’s intrastate (remember Geico of Virginia). And while, yes, the New Deal Supreme Court decided that insurance is interstate commerce, and also redefined such commerce to include virtually all human activity, that doesn’t mean Congress must exercise such an expansive power.
And yet the doctors’ bills all do. They’re all based on a Rooseveltian, New Deal reading of the Commerce Clause, the same reading that every self-respecting originalist and five sitting members of the Supreme Court reject when it comes to Obamacare.
Guys! Come on! Either you think insurance regulation is a reserved power of the states under the Tenth Amendment, or you don’t.
But that’s the bad news. The good news is there’s a constitutional way to promote interstate competition. It’s called an interstate compact.
Instead of trying to create an unnecessary “national marketplace” in insurance, which only makes Uncle Sam even more of a national insurance commissioner than he already is, states should simply streamline their regulations and promote portability via an interstate agreement approved by Congress.
In fact, such a compact already exists. Its purpose is to facilitate interstate comity in most forms of insurance. It just needs to be updated to cover health insurance. States haven’t bothered to update it because Uncle Sam is sitting on their chest.
So if we want to revive the true insurance market — a competitive, state-based market — we have to get Uncle Sam off the states’ chest and out of their business. And we have to change the tax laws to stop favoring group health benefits over true insurance.
Individual ownership is the holy grail. When most Americans own their insurance, it will be portable and affordable. But there is only one road to the holy grail, and it does not end in Washington. It ends in your state capital.