Why allowing health insurance to be sold across state lines is no panacea : AVI FRISCH
By: Health Insurance
Submitted: 2009-09-28 10:49:29 | Word Count: 737
One of the few ideas offered by Republicans for health care reform is to allow health insurance companies to sell plans nationally without regard to state borders or state regulation.
As Rep. Charles Boustany (R-La.) put it in his response to the President last week, "I and many other Republicans believe that that will provide real choice and competition to lower the cost of health insurance."
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This Republican idea conceivably could ameliorate some problems in the health insurance market. One such would be the common lack of competition within given states.
New Jersey, I heard Governor Corzine pronounce, has one company that covers 65 percent of the market. In some states as much as 85 percent of the insurance market is controlled by a single carrier. Another problem is that costs differ greatly from state to state, and allowing interstate competition would presumably somehow (as if by magic) allow the lowest cost insurance company to enter a state and drive down prices.
Taking this suggestion at face value, it appears to have some worth. So what is the problem? Delaware, little Delaware.
Why do I pick on Delaware? Because Delaware, leading the country in incorporations and the home state of many of the most usurious credit card issuers, manages to ratchet down the quality of whatever it touches.
How did it get that way? A bit of history is called for.
In corporate law, Delaware has systematically forced down standards of corporate governance to attract incorporations and the taxes and fees that accompany them. This works to the detriment of shareholders who own but do not manage the companies, by allowing CEO's and boards free reign to manage companies in their own interest.
Delaware (along with South Dakota) has also systematically destroyed restrictions on usurious credit cards. Loose laws in both states wind up allowing banks legally operating out of those states but lending everywhere to charge extremely high interest rates without fear of usury laws.
Similarly, Delaware or some other opportunistic state would doubtless enact health insurance laws under the proposed reform of Congressman Boustany, making the worst possible health insurance the main offering available for virtually everyone in the private insurance market in all states. This will mean that not only will the individual states lose the ability to regulate health insurance, but the power to determine health insurance rates will be given over to that state with the most craven interest in attracting tax dollars regardless of how the public is harmed.
Of course, hardly anyone would think that insurance companies will work better without serious regulation in these days in which we are still recovering from an economic crisis caused by unregulated banks and insurers like AIG.
So it might be better were Congressman Boustany to propose federal regulation of insurance companies, thus averting a race to the bottom.
If there is to be state regulation of insurance, each state must be able to protect its citizens as it sees fit. New Jersey has decided that bare bones insurance policies are not right for the people of the state and mandates the length of stays for women after childbirth, the coverage of mammograms and autism support.
These mandates cost money, but came about as a result of people finding out that expensive policies just did not cover services that they expected would be covered when they paid their premiums.
Allowing out-of-state insurers to come into New Jersey subject only to the regulation of their home state will lead to virtually all plans being offered by insurers being exempt from local regulation.
The market will force out the fuller policies offered by New Jersey insurers and then the only available plans will come from Delaware (or its health equivalent), as insurance companies will relocate to take advantage of favorable regulations.
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