Monthly Archives: May 2012

The Argument Against Selling Health Insurance Across State Lines

A popular idea tossed around in the search for effective healthcare/insurance reform is the notion of selling insurance across state lines.   Along with malpractice reform, this often tops the list of solutions, especially from Republicans, even as the main culprit, unnecessary third-party payment, is not even mentioned.  At a recent debate for an open seat in the US House in the district where I live all five GOP candidates spoke in favor of this concept.  Yet is it a good idea or possibly the source of more trouble, and are there other means to attack the existing problem?

On the surface it would seem like a fantastic idea and with good reason.  The argument goes that more competition would bring down prices.  After all, the opportunity to purchase a health plan from a company not doing business in a particular state would now be available.  More importantly, because insurance is separately regulated state by state, it would now be possible to circumvent excessive mandates and regulations that much more dramatically affect price than the number of company choices available.  Both the number of coverage mandates and the nature of them varies greatly from one state to another.  In a few states simply requirements for community rating and guaranteed issue have made the individual market so expensive as to all but destroy it.  In this sense, so long as there are at least three or four company choices anyway, the ability to purchase insurance regulated and approved in another state would change the nature of the competition from one of price to that of determining the least amount of expensive regulation and mandates the buyer felt was needed for their protection.  So far, so good.  What is not to like?

The problem and basis for the argument against what would seem like such a good idea on its surface is the Commerce Clause of the US Constitution, or rather more correctly, the modern perverted interpretation of it.  What began as a provision to facilitate exchange among the states has over time become an excuse for the Federal Government to impose all manner of meddling and micro-management to anything bought or sold across state lines.  The fact that insurance is not bought and sold across state lines should serve as a defense against such federal meddling and against the imposition of Obamacare itself.  In this regard, providing for such interstate commerce would open the door to the legitimate intrusion of the federal government and surrender of the defense that exists without it.

The origin of state control of insurance was the McCarran-Furgeson Act of 1945 which exempted insurance from federal anti-trust laws and left regulation to the states.  Right up to today this has kept federal regulators mostly out of the picture, with the exception being health insurance.  Even there federal intrusions have been few and limited until the passage of Obamacare.  The fact that they went unchallenged by the states was absolutely a mistake by the states, but the extent and nature of the intrusions was of limited scope and never sparked challenges that should have occurred.  Now with the passage of Obamacare the federal government has become the bull in the china shop, seeing no limit to its authority, even though a reasonable defense against it still remains so long as we do not move to purchase across state lines.

Two possible alternative solutions come to mind.  The first makes the most sense and leaves little doubt as to its effectiveness.  Those states that have ruined their health insurance market by excessive and abusive mandates and regulation need to fix their problem internally.  Rolling back that which has caused the problem will eliminate it and do for its citizens exactly what providing the opportunity for circumvention would do.  The second solution is more problematic and questionable.  That would be to possibly keep the federal government out by the formation of compacts among states that want to provide for the purchase of each other’s health insurance plans.  Since compacts must be approved by congress and the internal solution would work as well, this approach would not be suggested.

The bottom line here is that what seems like a great idea to solve a known problem may simply cause even more trouble, give away a reasonable defense, and end up being in the category of “be careful what you wish for”.

How a High Health Insurance Deductible Negates Most Mandated Coverages

Among those who recognize that the elimination of Obamacare does nothing to fix the very real problems with the status quo that existed and were growing long before Obama’s election, state mandated coverages often are one topic in the search for a cure to what is wrong with healthcare in America.  Their presence has steadily grown over the years finding too little resistance in most state legislatures.  The total number of mandates in all the states as of the end of 2011 was 2262 according to a report by The Council for Affordable Health Insurance.  This is up from a total of about 850 in 1992, the first year the organization began tracking them.  Yet focus on rolling back these regulations may be  effort that could better be spent elsewhere in the promotion of high deductible insurance that in itself negates most coverage mandates, especially the most questionable among them, and resolves other problems as well.

Coverage mandates especially draw attention of free market reformers due to the ones that simply make no sense.  Some states require such dubious things as marriage counseling, massage therapy, hair transplants, in vitro fertilization, smoking cessation, and a host of other conditions to be included in every policy written.  When mixed into the same soup with low or non-existent deductibles and small copays this becomes a recipe for trouble, eliminating all constraints on use of services many would argue should not even be categorized as health care in the first place, yet these payouts must be baked into everyone’s premium.  In this sense, the “coverage” is truly an illusion as the appearance of free exists only for the user who probably has not considered that this necessarily means the unconstrained use of everyone else is then their bill to pay.  Nothing is gained in such arrangements and in fact much is lost both in overuse and the provider and third-party payer’s expense in effecting the transactions rather than simply taking direct payment from the user at the time of service.

None of this is to suggest there are not mandated coverages that would escape negation by a high deductible and it is these situations that should receive the focus of attempts to attack the mandated coverage problem.  The most onerous of the bunch are community rating across all age groups and guaranteed issue which alone have destroyed the market for individual insurance in several states and are a topic for another discussion.

Of specific procedure coverage mandates it is only those that require first dollar coverage or supersede the deductible and perhaps then only require very small copays that escape the negation of a high deductible and need attention.  All others can be ignored and may even serve a useful purpose by providing an incentive to move to high deductible insurance as it becomes even less expensive in relative terms to its low deductible counterpart that must include the incentivized overuse in its premiums.

With a properly high deductible the situation changes markedly.  A large majority of people with a high deductible never have to file a claim in any given year.  This means that most services are paid directly and not by others.  This puts a cap on waste and the discussion changes from if a particular service is covered and then overused with payment by others to if a particular covered service counts toward a deductible that will most likely never be reached, and thereby eliminates the requirement to include such costs in the premium.  This fact explains why high deductible insurance can be priced so much cheaper than that with low or non-existent deductibles.

Another benefit of a high deductible is its effect to contain the high cost of defensive medicine as questions of necessity are much more likely to be asked by those spending their own money before using that of others.  Providers will still have an interest in protecting themselves but can do that and curb use by having patients sign off on declined tests and procedures after discussing the benefits and risks.  Unnecessary third-party payment demonstrably is the poison to a functioning free market in health care, and it’s elimination must always be central in the path to true reform.