More On Buying Health Insurance Across State Lines

I’ve expressed a real lack of enthusiasm for the Republican proposal that Congress should pass a law allowing groups to go jurisdiction-shopping for health insurance, especially in the absence of eliminating the prejudice against individual ownership of health insurance.

One correspondent chided me for allowing states’ “geographic monopolies” to stand in the way of competition. But isn’t that a fundamental characteristic of a state — that it has a monopoly over state laws within its own boundaries? If you don’t like it, vote in a new legislature or move to another state. I live in California, where personal income taxes are way too high and harmful to our welfare. But I’ve never heard a Republican politician propose that Congress pass a law allowing individuals to choose which state’s rate of income tax they pay, so Californians could opt to pay zero income tax by choosing Florida’s tax rates.

In any case, this is irrelevant: States can just go ahead and allow interstate purchasing of health insurance themselves. Here’s a bill in Washington State to allow just that; and here’s one in Georgia. So, just get on with it. There’s no need to wait for Congress to act.

On the “Interstate Purchase of Health Insurance”: A Dissent?

Many conservative health-policy analysts write in support of “interstate purchase of health insurance.”  What do they mean?

Or, to frame the question a little differently: 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 homes. 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?

Removing Insurance Anti-trust Exemption is Misguided

The Denver Business Journal reports:

A recent salvo against the insurance industry came in a missive from U.S. Rep. Betsy Markey, D-Colorado. From an email her office sent out Monday:

“For too many years the health insurance industry has been allowed to fix prices, collude with each other and wield monopoly control over us without fear of investigation.

“This week I’m introducing a piece of legislation removing the anti-trust exemption from the insurance industry. I’m proud to stand up for the patients against the kind of profiteering the insurance industry has so long enjoyed.”

The Denver Post reported this last week, and I submitted the following letter to the editor:

Instead of scapegoating a narrow antitrust exemption for paltry insurance competition, Representative Betsy Markey should confess to how she and her political allies have prevented competitive insurance markets in the first place.

The Post reports that Markey’s bill would “remove the antitrust exemption now enjoyed by health-insurance companies” (Feb. 5). This is misleading. The exemption, codified by the McCarran-Ferguson Act, applies only to practices constituting “the business of insurance,” that are “regulated by State law” and lack “an agreement to boycott, coerce, or intimidate.” The federal government can already restrict allegedly anti-competitive insurance company practices such as mergers and group boycotts.

Blame politicians for protecting insurers from competition. Because the tax code chains you to our employer’s plans, changing your insurance provider entails changing jobs or paying a stiff tax penalty. Further, politicians forbid consumers from buying more affordable policies available in other states. Repealing these controls would greatly benefit consumers.

For more, see:

Government Accountability Office, Legal Principles Defining the Scope of the Federal Antitrust Exemption for Insurance, March 4, 2005.

Eliminating Antitrust Exemption Will Kill Health Care Competition, Gregory Conko & Kevin Hilferty, Investors Business Daily, Novemer 4 2009,
and a well-referenced report by the same authors: Congressional Misdiagnosis: Why Repealing McCarran-Ferguson Will Harm Competition in Health Insurance Markets.

Re: COBRA’s bite

John,

Thanks for highlighting John Hood’s column this morning. When people who purchase insurance on their own become unemployed, they are three times as likely to remain insured than those who were insured through their employers, even with COBRA. But COBRA is expensive and entails a big jump in premiums, so just 19 percent of unemployed people had purchased coverage that way. Federal subsidies doubled the percentage of unemployed taking up the continuation of coverage benefit as they cut the cost to individuals by 65 percent. As noted, COBRA is a bad idea, with or without subsidies.

Recent research goes further still, and questions the value of group insurance. The authors find that benefits from individually-based insurance more than offset any cost savings from getting insurance in a group plan.

Individual policies provide more choice, more security, and cost less for the unemployed without raising cost to taxpayers. Why do Republicans and Democrats alike want to build on the current employer-based system?

cross posted at Locker Room

“A Showdown Between Corporate Oligopolies”

Congratulations to New York Times reporter Anemona Hartocollis for a very informative article on a contract dispute between UnitedHealth Group and a consortium of New York hospitals.

The health plan wants to insert a clause in its contract with the hospitals that will reduce fees by 50 percent if a hospital does not inform the plan within 24 hours of one of its enrollees being admitted.  The incentives are obvious: The health plan wants to know ASAP before the hospital staff start running up the bills.

In this case, my sympathies lie (ever so slightly) in favor of UnitedHealth Group, if only because UHG is attempting to insert the condition in a privately negotiated contract, whereas the hospital consortium is running to the state government to stop it (as other hospitals in Tennessee have done, according to the article).

However, one expert quoted in the article described this as a “showdown between corporate oligopolies”.   That may be a little extreme, but it brings us to the gist of the issue.  As long as we rely on a third party to pay for our medical services, piece by piece, it will be subject to micro-management.

I expect that if every American were free to buy a health-insurance policy of his or her own choice, a catastrophic illness or accident that required hospitalization would result in a cash pay-out by the insurer, and the patient would go to whichever hospital he preferred.  There would be little or no need for wasting time and effort negotiating “networks.”

But that’s just one man’s opinion: Government needs to give that money and power to patients, and then we’ll find out.

Like to Freelance? Too Bad

During the heyday of  the most recent economic boom, freelancing and entrepreneurial activity were all the rage in books such as Free Agent Nation. Freelance activity has many benefits, both for freelancers and their clients.

So will the House and Senate health reform bills help freelancers? Fat chance. It will make insurance expensive for many freelancers, impose a tax on those who for whatever reason go without insurance for a while, and it may thwart the attempt of at least one freelancers group to provide affordable coverage for its members.

Where Did Your $13,500 Go?

$13,500 per year. That’s the cost of an average employer-sponsored health insurance plan–money that could have gone into your paycheck.

Ezra Klein reminds us that “health-care coverage is not a benefit. It’s a wage deduction.” And the deduction of your income went to buy something your boss your his HR department–not you–picked out.

Putting Congress in his place is no improvement.

Why to condemn insurance companies. No, not their profits.

Is the for-profit insurance industry a “predator” that “prevent[s] us from having a decent health care system”?  Letter writer Bruce Robinson says so (Boulder Daily Camera, December 1). He’s partially right. The real predators are politicians who inhibit needed health policy reform.  But insurers are guilty for concealing how they benefit from Congress’s predatory practices, which shield them from competition and accountability to patients.

Predators gain value by using force or threats of force. Politicians prey upon patients who prefer to finance their own medical care in “politically incorrect” ways. As a result, insurers need not compete for your business. Politicians punch you with a tax penalty for buying insurance directly from an insurer instead of through your employer. They prohibit you from buying affordable policies available in other states. They tax you more for paying cash for routine medical expenses rather than buying an expensive health plan with tax-deductible premiums.

Like a true predator, politicians support legislation that backs you into a corner — where as the patient, you are the consumer but not the customer. Hence, neither insurers nor doctors aim to please you. They cater to who pays them. Employers pay the insurers and insurers pay the doctors.

So don’t condemn for-profit insurance.  The profits are “anemic,” reports the AP.  Condemn insurers for supporting an un-free market, where profit is disconnected from pleasing consumers. Only in a free market insurers’ profits would depend on satisfying you, the patient, rather than satisfying employers and politicians.

The above was published in the Daily Camera (Boulder, CO) on December 5, 2009.

I should thank Ari Armstrong for this observation that influenced this article:

In a free market, profit means that customers happily pay for some good or service. It is only outside of that market context that profit is bad. For example, a Mafia boss might “profit” by killing people, or a politician might “profit” by doing favors for special interests.

Also, the title of a recent article by Jacob Sullum’s is an excellent phrase that we should become a meme: The Consumer Is Not the Customer.  It’s a great distinction, as we often use “consumer” and “customer” interchangeably.

See also “Down with the health insurers,” by Tim Carney (author of the just released book Obamanomics)and my blog post from a couple days earlier, How insurance companies can gain credibility.

Another Victim of Medicaid (And Employer Benefits)

Nicholas D. Kristof has pretty much shoved Prof. Paul Krugman aside as the News York Times’ leading advocate of government-centered medicine. He seems deliberately not to see that government has created the problems of fragmented coverage, by using the tax code to give employers unfair advantage over employees in acquiring coverage.  In today’s column, he parrots a discredited study, which asserts that 45,000 Americans die from lack of insurances (which is already debunked, along with the entire literature on “mortality due to insurance” here).

Mr. Kristof also recounts a horrible story: A man who suffers an abnormal growth of blood vessels in his brain, which has rendered him unable to work.  Of course, he lost his employment-based “benefits,” and was unable to acquire individual insurance because of his severe condition.  As usual, the story has an element of unreality, because Mr. Kristof claims that the man exhausted his COBRA continuation coverage, after which his wife could not get him covered as a dependent on her employer-based plan because of his condition.

I write “element of unreality” because (as I’ve noted before in other cases), the information given suggests that the man should not have suffered an exclusion for his pre-existing condition.  My reading of Oregon law indicates that an employer does not have to offer any dependent coverage.  However, if it does, he has to cover all dependents without differentiation.  Because his wife was already covered, and he had continuous creditable coverage and exhausted COBRA.  both Oregon and federal law should ensure that the man would get coverage.

But I digress: My point is that Mr. Kristof knows that the man is enrolled in Oregon Medicaid!  And the man cannot find a specialist to treat him because reimbursement is too low.  From this, Mr. Kristof concludes that we need more government-centered health care.

There is really no explaining what kind of thought-process arrives at such a conclusion.

New Yorker Would Have Done Better With Individual Insurance To Start

Yesterday’s Wall Street Journal ran a letter by a New Yorker, who was appalled at a contributor’s criticism of New York’s regulation of health insurance. As discussed frequently in this blog, NY imposes guaranteed issue and community rating on individually purchased health insurance.  These rules allow people to wait until they become sick to buy health insurance.

Laurie Rippon notes that (s)he lost his job after being hit by a car while crossing the street, which resulted in traumatic brain injury.  After timing out of COBRA coverage, he would not have been able to buy an individual policy because he would not have passed underwriting.  Mr. Rippon is grateful for NY’s regulations, because they insured that he could buy individual health insurance.

In fact, Mr. Rippon was ripped off.   Rates in NY for individual insurance are higher than in states that allow underwriting, because they allow people to wait until they become sick to buy policies.  Mr. Rippon notes that “pre-existing conditions” are not all caused by lifestyle choices, like smoking or those that lead to obesity.  True enough, but actuarial tables do not care how you got a pre-existing condition: It has to be priced accurately, whatever the cause.

Mr. Rippon’s tragedy was compounded by the government’s driving us into employer-based benefits, instead of individual insurance as the default.  This would have resulted in a market such as the one described by Professor John Cochrane or Professor Mark Pauly and colleagues (which I discuss here).

Mr. Rippon would have bought an individual health-insurance policy, for which the premiums would not have increased after he was injured.  This would have resulted in lower premiums than he’s paying today.