Conservative Colloquium

An Intellectual Forum for All Things Conservative

High Healthcare Insurance Costs Caused by Government

Posted by Tony Listi on January 12, 2008

By Michael J. New

It’s a problem that vexes policymakers in both parties: reducing the large number of Americans who lack health insurance. At any given time, the Census Bureau estimates, about 15 percent of the total population lacks health coverage.

Many argue for greater government intervention in health care. How ironic, since government policy, particularly excessive regulatory intervention, prices many Americans out of coverage and thus contributes to the high numbers of uninsured.

Examples abound of how health insurance regulations have increased prices and disrupted insurance markets in many states. One common regulation is known as guaranteed-issue laws. These laws make it impossible for insurance companies to reject anyone who applies for health insurance. This sounds nice in theory, but it has costs that can price individuals and families out of the market.

Why? Because in states with guaranteed-issue laws, insurers are forced to provide coverage for people with pre-existing medical conditions, so they raise premiums on everyone else to cover these costs.

Plus, individuals in these states will often wait until they’re ill before purchasing the insurance. This raises premiums further. Worse, many insurers quit offering insurance in states with guaranteed-issue laws, and the lack of competition results in still-higher prices and fewer choices for consumers.

Another set of regulations with negative consequences is community-rating laws, which limit the extent to which insurers can charge different prices to different individuals. There are a variety of community-rating laws, ranging from “modified community rating” to strict community rating, and the strictness also varies.

In practice, the insurance companies, under these rules, are required to charge healthy and unhealthy people relatively similar premiums. This sounds nice, too, but these laws can have an impact similar to guaranteed-issue laws.

That’s especially the case in states with strict community-rating laws. In those states, the low premiums typically won’t generate sufficient revenue to cover higher-risk individuals. As a result, health-insurance companies end up raising prices on both healthy and unhealthy individuals, resulting in higher costs for everyone. Several states, including Massachusetts, New York, Kentucky, West Virginia, Vermont and New Hampshire, have seen premiums skyrocket after community-rating or guaranteed-issue laws were imposed.

Insurance is regulated in countless other ways. Many states require that all insurance plans cover a variety of providers and benefits, ranging from chiropractors and infertility treatments to acupuncture and wigs. To varying degrees, these rules increase prices as well.

Some states also limit the ability of health care plans to exclude providers. Other states give subscribers the right to go to a specialist without a referral from a primary physician. Still others hold insurance companies liable for harm done to enrollees. All of these regulations effectively raise prices.

A study I recently completed for The Heritage Foundation shows that each of these regulations boosts health insurance premiums by statistically significant margins. A consumer in a state with heavy regulation could pay up to $100 more a month ($1,200 a year) than a consumer in a low-regulation state for an identical individual health insurance plan.

But, some will say, relatively few Americans buy insurance on their own, so these regulations don’t cause much harm. It should be noted, however, that today the “non-group” market is often a market of last resort, largely consisting of those without access to employer-sponsored insurance. Therefore, the cost of its premiums likely affects whether many of these Americans can afford to purchase health insurance.

If they are serious about reducing the number of uninsured in their states, state legislators should review their insurance rules, repeal those that imposes higher costs than the benefits they are supposed to deliver, or at least modify them to reduce health care costs on individuals and families.

Meanwhile, Congress can help. Rep. John Shadegg, R-Ariz., has introduced the Health Care Choice Act that would allow individuals and families in high cost states to buy more affordable health insurance from carriers regulated in other states. As a result, individuals and families living in states where excessive insurance regulations have driven up the cost of coverage could then be free to purchase insurance elsewhere.

State insurance regulations are supposed to protect consumers and prevent unfair business practices, and many do. Still, regulations always pose tradeoffs, and it is evident that many regulations were adopted without giving careful thought to their relative costs and benefits. State officials need to engage in the much needed debate over these tradeoffs, and determine how much health insurance regulation they are willing to impose at the cost of pricing even more individuals and families out of coverage.

Michael J. New, an assistant professor at the University of Alabama, is a visiting health policy fellow at The Heritage Foundation.

State Health Insurance Regulations
By Eric-Charles Banfield

Eric-Charles Banfield is owner of Banfield Analytical Services in Westmont, Ill., specializing in writing, speaking, and testifying about financial, economic, and public-policy issues.

Many government policies, notably .those separating consumers from suppliers, distort the economics of health insurance, and prevent market forces from addressing the problems. Yet regulators considering “reforms” promise to give us only more of the same. Better remedies exist, and Congress is taking note.

Health insurance is increasingly expensive, mostly due to the rising cost of health care. Those costs are rising for many reasons, most of which are tied to Medicare, Medicaid, Veterans Administration hospitals, licensing restrictions, malpractice law, and other government policies. But government meddling in the health insurance business itself accounts for a large part of the problem, explaining over half of the uninsured population.

Employer-Provided Health Insurance

U.S. tax policy provides incentives for businesses to provide health insurance, despite the fact that the average person stays with an employer on average only four years. That tax policy also triggers excess spending, especially on small claims. Using a tax break not allowed to individuals, companies give employees an expensive, low-deduct-ible, high-premium health insurance policy instead of giving them higher wages.

Low deductibles tell people to use insurance for routine health care, even though insurance is really for catastrophic, unpredictable expenses. Tax policy also says that employees, once past their deductible, cannot keep any money they save by not using their insurance.

The incentive to use-it-or-lose-it, combined with low deductibles, tells employees to use insurance for everything possible, making them less careful about where and how they spend that money. Most of the rising cost of health care is because of the increase in demand for health services we might not otherwise pay for, and all of the administrative costs that go with them. It can cost $50 to process a $50 claim. Tax policy makes people bid up costs aggressively, and that accounts for much of the high rates of growth in health-care costs, which in turn drives up health-insurance costs. Those policies price up to 10 million people out of the market, over a quarter of the uninsured population.[1]

So, in a strange way, the problem is that we are over-insured, but that excess coverage occurs at the low end of the health-care scale, where most expenses fall ($100 to $1000).

With insurance tied to employment, an employee who loses his job would be uninsured. Legislatures in most states passed laws forcing firms to continue ex-employees on their group-insurance plans if the former employee picks up the premium payments. But those premiums are very high due to the low deductibles, far too expensive for someone whose income has just been cut off.

It is difficult to select a higher deductible in order to lower the premium payments, because the plan is a group plan instead of an individual plan, and it is not permitted to change the deductible. It takes time to find and shift to a new individual or short-term policy, and the high premiums make it difficult to afford coverage during that search period.

Mandated Coverage, Special Privileges

State laws also mandate that insurers pay for services determined by the political process, not by market forces. Often they have little to do with health care per se. About 800 insurance mandates force insurers to pay for such things as marital counseling, pastoral counseling, toupees, and even sperm-bank deposits. Studies report those mandates bid up insurance prices by 30 percent or $50 billion,[2] pricing eight to ten million people out of the insurance market,[3] about a quarter of the uninsured population. State legislatures are the cause of millions being uninsured and underinsured.

The government has given Blue Cross/ Blue Shield (BCBS), formerly a hospital pre-payment plan, various special privileges granting them a competitive edge over other insurers. BCBS is exempt from taxes, antitrust regulations, actuarial requirements, and reserve requirements. With those privileges, BCBS can afford to use “community rating,” giving all people in a geographical area the same premium rate regardless of risk. Risky people pay too little; low-risk people pay too much. BCBS loses customers as other insurers pick the healthiest customers and offer them lower rates. Facing shrinking premium income and having no reserves, some state BCBS plans are going broke.

With their obvious political power, those state “Blues” propose laws (as in New York and Vermont) to force community rating on all insurers. But those insurers face real costs because they don’t have the same privileges as BCBS. Younger and healthier people in those states, forced by law into a community-rating pool, face much higher premiums, up to triple in some cases. With nowhere else to go (all insurers in the state face the same law), they drop their expensive coverage and go uninsured. When they develop problems in later years; they will find insurance prohibitively expensive or unavailable in those states.[4]

Gag Rules and Other Distortions

States have even enacted laws prohibiting insurance agents from saying anything bad about an insurance company.[5] That deprives consumers of valuable information from those who would know best. It cuts off the primary source of information about which insurers are slow to pay, in financial trouble, or otherwise poorly managed.

Other government factors distort the insurance market. Some states fix the prices or range of prices that preferred-provider organizations (PPOs) can offer.[6] Eight or nine state insurance commissioners do not have the right to regulate insurance premiums, but, according to industry classifications, “act as if they do” through their cumbersome filing and approval process for insurance policies.[7] The government and the legal system have made insurance policies into one-way, standardized, take-it-or-leave-it contracts, with little consumer input into what the contract says. As with federal deposit insurance, government regulation and implicit guarantees lessen consumer concern about safety and reliability.

New Regulatory Threats

Minnesota has passed Universal Health Insurance, and other nearby states have similar bills. Other states are considering improving community rating requirements.

A group of multi-state regulators (actuar-ies working for state commissioners) is drafting legislation that would regulate the price, quantity, and profit margin of the small-group and individual insurance markets. The Life and Health Actuarial Task Force is considering putting ceilings on premium rate increases, forcing guaranteed renewability, and raising “lifetime loss limit ratios.”[8]

Economic market forces dictate that price and quantity naturally respond to each other. Artificial rate ceilings would have to be made up by reducing coverage. But forcing renewal increases coverage, and should require higher rates. But rates are fixed by ceiling. In case that’s not enough to push insurers out of the market, the higher loss limit ratios mean more benefits paid and fewer premium dollars taken in, or a lower operating profit margin. Insurers will stop doing business in certain states, and some may be driven out of business altogether.

Individual Medical Accounts

One solution that would go part way toward solving the health insurance problem is Individual Medical Accounts (IMAs). Also known as Medical Savings Accounts or Medical IRAs, these accounts would reduce bidding for needless services, provide for financial resources to cover medical expenses, and provide a portable account in case of job loss.

Tax policy is a major reason employers offer health insurance. That tax break means the firm takes what would otherwise have been an employee’s wages and buys instead an expensive, low-deductible insurance pol icy that the individual might not choose if he had to pay the premium directly.

IMAs would allow employees to select a higher deductible, say $1000 instead of $200, and put the premium savings of about $800 into a tax-free, interest-bearing account that would be immediately available to cover payments up to the deductible. Insurance would kick in as usual for amounts over the deductible.

IMAs would have a “use-it-or-keep-it” feature, allowing individuals to accumulate any savings (from not using the account in a given year) over time. The insured would then have new incentive to be frugal with health care, shop more carefully, compare prices, and not use it to cover needless trips to the doctor for minor ailments or frivolous services. That would in turn reduce the bidding of prices at the routine care level and reduce the administrative costs associated with small claims. Best of all, if the employee loses his job, he can carry the account with him and use it to pay for medical expenses or buy interim or individual insurance coverage.[9] The cost would be the same to employers, and employees would have more freedom.

Reform, or Else

Health-insurance regulation drives a wedge between the consumers and those who provide it, weakening further their ability to choose for themselves what they want. Government involvement in insurance is primarily responsible for the reduced accessibility and increased cost of health insurance.

Government must deregulate the insurance business. The only thing worse than the continued destruction of the insurance market would be the subsequent national health insurance system that the U.S. government would run.

By Onkar Ghate, Ayn Rand Institute

The cause of the U.S. health-care mess is governmental interference. The solution, therefore, is not more governmental control, whether via nationalized medical insurance or a government takeover of medicine.

Health insurance costs so much today because the government, on the premise that there exists a “right” to health care at someone else’s expense, has promised Americans a free lunch. When a person can consume medical services without needing to consider how to pay for them-Medicare, Medicaid, or the individual’s employer will foot the bill-demand skyrockets. The $2,000 elective liver test he or she would have forgone in favor of a better place to live suddenly becomes a necessity when its cost seems to add up to $0.

As the expense of providing “free” health care erupts accordingly, the government tries to control costs by clamping down on the providers of health care. A massive net of regulations descends on doctors, nurses, insurers, and drug companies. As more of their endeavors are rendered unprofitable, drug companies produce fewer drugs, and insurers limit their policies or exit the industry.

Doctors and nurses, now buried in paperwork and faced with the endless, unjust task of appeasing government regulators, find their love for their work dissipating. They cut their hours or leave the profession. Many young people decide never to enter those fields in the first place.

What happens when demand skyrockets and supply is restricted? The price of medicine explodes. What was once to serve as a free lunch for everyone becomes lunch for no one.

The solution? Remove all controls. Recognize each citizen’s right and responsibility to pay for his or her own health care, and return to insurers the entrepreneurial freedom to come up with innovative products.

True freedom would bring health care into the reach of the average U.S. citizen again-just as it has done for other goods and services, such as computers, cell phones, and food.

By Steven M. Warshawsky
In 2005, Americans spent roughly $2 trillion on health care, or an average of $6,700 per person. This amounted to 16 percent of the gross domestic product. In other words, nearly one-sixth of the total output of goods and services produced by our economy in 2005 was devoted to health care (including both public and private expenditures). Many analysts expect total spending on health care to rise to $4 trillion and 20 percent of GDP by 2015.
The question is: Is this a good thing, a bad thing, or just a fact of life in an advanced technological society with an aging population?
The answer is that it is all three.
On the one hand, high levels of health care spending is a good thing because it means that millions of Americans are receiving the highest quality medical care that is available anywhere in the world. Compared to citizens of other western countries, the average American has more access to the best doctors, the best facilities, the best medicines, and the best diagnostic and treatment technologies. This is why people from Canada and Britain and Europe, indeed from all over the world, come to the United States to obtain needed medical care that is not available to them in their home countries. This even includes Canadian mothers who are sent to the United States to give birth because their local public hospitals lack bed space and the ability to handle high-risk pregnancies. So much for the alleged superiority of “single-payer” health care systems.
Yet the highest quality medical care in the world comes at a steep price. This price has nothing to do with “greedy” doctors, HMOs, and drug companies. Rather, as with any other good or service, the price of medical care fundamentally is determined by the value of the resources required to produce it. And the resources required to produce, say, a world-class cardiologist or orthopedic surgeon or oncologist are extremely valuable.

For starters, only the smartest people in our society (roughly the top 10 percent) have the innate ability to become competent, modern doctors. Then these people must go through 10 to 15 years (post-high school) of very demanding, and very expensive, education and training. Then they must be equipped with the most advanced tools and drugs and machines, all of which cost many more millions (sometimes billions) of dollars to develop and produce. Only at this point can these doctors start providing us with the high-quality medical care that we expect in this country.
To expect that this medical care can come cheap is to indulge in wishful thinking. Such wishful thinking lies at the heart of the health care plans being offered by the leading Democratic presidential candidates. They all claim to be able to provide more Americans with better health care at a lower cost. For example, according to Hillary Clinton, her plan “covers all Americans and improves health care by lowering costs and improving quality.” John Edwards likewise promises “universal health care reform that covers everyone, cuts costs, and provides better care.” Barack Obama at least acknowledges that “the best medical technology and scientific research in the world” come at a heavy price, but he too believes it is possible to provide “affordable, comprehensive, and portable health coverage for all Americans.”
This is pure fantasy. True, we can provide more Americans with lower cost health care — by reducing the quality of the health care they receive. For example, by prescribing trusses for hernias instead of repairing them surgically, as often happens in Britain. Or we can provide more Americans with higher-quality health care — by increasing the total amount of health care spending. But we cannot provide every American with the best medical care money can buy, while at the same time reducing the amount of our gross domestic product devoted to health care. This is an economic impossibility.
But what about the argument — which has become commonplace in public policy circles since the days of Hillarycare — that the main reason health care costs are so high in this country is because we pay for our medical care through third-party payment plans, i.e., insurance (both public and private)? Washington Post and Newsweek columnist Robert Samuelson makes this argument in his most recent column.
The gist of this argument is that if consumers had to pay more for their health care out-of-pocket, instead of through insurance, they would make wiser and more efficient health care decisions. For example, if a doctor’s visit cost $100, instead of only a $10 co-pay, consumers would be less likely to go to the doctor for minor illnesses and injuries, like common colds and sprained ankles, and instead would save their visits for more serious conditions. However, as Samuelson argues, because “[m]ost Americans think that someone else pays for their care,” they have no incentive to “control spending.” Although Samuelson does not say so explicitly, what he and others who subscribe to this argument really are saying is that health care costs are so high in this country because Americans use too much health care.
But what does “too much” mean in this context? And who is to decide how much is enough?
Certainly, if Americans were to consume less and lower-quality health care, total health care spending would decrease. This is precisely why health care spending in countries like Canada and Britain is lower than in the United States. Their citizens are provided by their governments with less and lower-quality health care than the vast majority of Americans currently enjoy under our mixed system. If we adopt one of the health care plans being peddled by the Democrats, in the future Americans, too, will consume less and lower-quality health care. This may reduce the portion of our gross domestic product that is devoted to health care, but will this make us better off, individually and as a nation? For some Americans, yes. Overall, no.

Moreover, there is a hidden fallacy in Samuelson’s analysis. The problem with health care spending is not the reliance on insurance arrangements, per se. In a free market, insurance arrangements are economically efficient. Insurance works by pooling resources and rationally distributing risks and costs among large numbers of people. This enables more people to enjoy the benefits of various goods and services at a lower cost per person. Indeed, insurance arrangements are a vital feature of any modern commercial economy.

Importantly, the critical feature that underlies the economic efficiency of insurance arrangements is that individual premiums are based on each consumer’s risk-cost profile. That is, riskier consumers, i.e., those who are more likely to need the insurance, must pay a higher price for their coverage. For example, people who have speeding tickets are charged more for car insurance than those who have clean driving records. Similarly, consumers who want a larger amount of coverage must pay a higher price. For example, people who drive Cadillacs are charged more for collision coverage than people who drive Hyundais. Where insurance companies are allowed to charge each consumer a premium commensurate with the consumer’s level of risk and amount of coverage desired, then insurance arrangements are economically efficient. This also comports with our basic moral intuition that people who need or want more coverage should pay for it.

There is no question that the American health care market is inefficient. But this inefficiency does not stem from the use of third-party payment plans. Rather, it is the inevitable result of government tax-and-spend programs and regulatory mandates that interfere with the free market by eliminating the vital link between insurance premiums and each consumer’s risk-cost profile.

Consider Medicare and Medicaid, which in 2005 had combined expenditures of approximately $500 billion. Significantly, the premiums for these programs are not based on a rational assessment of each beneficiary’s risk-cost profile. Instead, these programs require only small co-pays based on income level. Moreover, these payments do not come close to paying the full cost of the medical care provided. On the contrary, the cost of this medical care is primarily paid for by payroll taxes and income taxes on all Americans. In other words, Medicare and Medicaid are not insurance arrangements in the correct sense of the term. They are entitlement programs. And like all entitlement programs, they are woefully inefficient.

What about private health insurance? Here, too, government regulations have transformed these policies into pseudo-entitlements by mandating that employers and insurance companies provide a panoply of benefits without taking into account each consumer’s risk-cost profile. Not surprisingly, such mandated benefits are a key component of the health care plans being offered by the Democratic candidates. For example, Hillary’s health care plan prohibits insurance companies from charging “excessive insurance company premiums” and denying coverage to any person based on pre-existing conditions. Obama’s plan requires insurance companies “to provide comprehensive benefits, issue every applicant a policy, and charge fair and stable premiums.” And Edwards’ plan requires insurance companies “to keep plans open to everyone and charge fair premiums, regardless of preexisting conditions, medical history, age, job, and other characteristics.”

In other words, under the Democratic plans, insurance companies will be strictly limited in their ability to calculate premiums based on the nature of the risks and costs to be covered for each consumer. As is already happening, this will raise the cost of insurance, unjustly shift costs from some consumers to others (by requiring consumers with more favorable risk-cost profiles to subsidize the premiums of those with less favorable risk-cost profiles), and create an increasingly untenable situation for all but the largest and most diversified insurance companies.

The bottom line is that there is only one truly efficient solution to the high cost of health care in this country: expanding the free market by eliminating mandates and phasing out entitlement programs. Socialized medicine is not the answer. Either it will lead to even more health care spending, and therefore higher taxes, because the government will mandate that all Americans receive top quality medical care; or it will lead to shortages, rationing, and lower-quality medical care for most Americans, as a way to reduce total spending. Neither scenario is desirable. Indeed, the first scenario inevitably will lead to the second. Plus, unless the government tyrannically prohibits wealthier citizens from paying separately for private medical care – effectively eliminating property rights – we still will have a mixed system that inefficiently adds to total costs.

Under greater free market conditions, Americans will be required to pay more individually for the health care they receive. Whether these payments are made out-of-pocket or through rationally priced insurance premiums, this will create the financial incentives to control spending that Samuelson stresses in his article. Yes, this also will mean that many Americans will not be able to afford the same level of health care that they currently enjoy as a result of government subsidies. However, the moral and financial responsibility for providing medical care should rest with each individual citizen and his or her family, not the business community or general public. Where an individual’s resources are not enough, private charity, not the government’s taxing authority, should fill the gap.

Nevertheless, even in a free market, total health care spending in this country still will be very high. As noted previously, high-quality health care is extremely expensive, and Americans have enormous demand for the best medical care money can buy. There is nothing inherently “bad” about this. The United States is an extremely rich country, and we have enough wealth to expend a large percentage of our gross domestic product on health care, while still providing for our other vital needs, e.g., national defense.

However, we do not have enough money for the government to “promise” every American, regardless of age or condition, that he or she will receive the best available medical care. We are not that rich, and never will be.

Steven M. Warshawsky

By Dr. David Gratzer

With a new Census Bureau report showing that 43.7 million Americans lack health insurance, the usual suspects make shock-and-awe comments – shock that the numbers are so high and awe that the government doesn’t do something dramatic. Most favor the federal government spending copious sums of money to rectify the situation. But the issue needs a more sober consideration; the surprise is that there aren’t more uninsured Americans. And if we’re serious about doing something about it, government is going to have to do less.

Census Bureau studies don’t usually lend themselves to great excitement, but when the topic is the uninsured, all bets are off. With news that the number of uninsured Americans has risen by 5.7 percent, front-page stories in newspapers across the country report similar factoids, like the observation that the total number is higher than the combined populations of 24 states.

The problems of the uninsured are different than those portrayed by the shock-and-awe crowd. The uninsured don’t lack health care; they lack health insurance. As a study by Blue Cross-Blue Shield noted earlier this year, about a third earn more than $50,000 a year. The situation isn’t necessarily dire for the rest – fully another third is eligible for Medicaid or some other type of assistance.

But for some working poor, the lack of insurance leads to a patchwork of free clinics and emergency rooms, expensive and government-subsidized alternatives to insurance. There are good reasons to worry about the uninsured working poor. For families without medical coverage, there is the stress of uncertainty and a lack of consistency in medical care. For the taxpayer, there is huge financial burden, approaching perhaps $100 billion a year.

Why are some Americans lacking insurance and what can be done? If you want to understand the basic problem, look no further than the predicament of small business. A Californian recently explained how expensive it is to insure the employees of his family’s business. With five healthy employees and their families, the annual bill for medical coverage sits at just under $100,000 per year. Granted the plan is generous and includes limited co-pays – but the price tag is stiff. Even less generous plans are expensive. The average cost of a family health plan rose from $8,000 in 2002 to more than $9,000 this year.

And for small businesses struggling to make ends meet, there is a temptation to simply cut all health benefits. Not surprisingly, the biggest drop in coverage this year occurred with Americans having employer-provided insurance. Indeed, excluding those eligible for Medicaid, most of the uninsured are employed by companies with fewer than ten employees.

Many now want the federal and state governments to step in by expanding public programs or providing tax relief to business – or both. All of the major Democratic presidential candidates, for example, offer sweeping (and costly) health reforms.

But looking to a government solution overlooks the profound role government has played in creating this problem in the first place. Consider California. Legislators have passed reams of regulations designed to make health insurance safe and fair by tying the hands of small businesses in their choice of plans. The end result is that even the most basic policies are expensive and overly comprehensive. Mandated coverage – those illnesses and treatments that must be included – requires second opinions, off label use of prescription drugs, and diabetic self-management in every Californian policy.

Further complicating the situation in America’s largest state is two more regulations: guaranteed issue (everyone must be sold insurance) and community rating (price must be based on age, not health). Together, guaranteed issue and community rating undermine the very principle of insurance, allowing people to get sick and then buy health insurance without financial penalty.

California is hardly the exception. Regulating the insurance industry has become the cause de jour in many states. There are more than 1,500 mandates on the books across America. A recent study suggests that in some states, mandates account for 40 percent of health-insurance costs. And legislators haven’t just targeted the small group market (businesses with fewer than 50 employees) but, in several states, have turned their attention to the individual market. The result is similar. In New York, a gentleman in his 30s must pay $250 or more a month for health insurance; over in Connecticut, he can gain similar coverage for an eighth of the price. Given the obstacles placed in the way of affordable health coverage, it’s surprising that there aren’t more uninsured Americans.

Ideally, mandate-heavy states should deregulate health insurance. Since this is unlikely, there is a straightforward alternative: The federal government should step in and allow out-of-state health-insurance purchases. The Internet provides a perfect venue for this new health-insurance market. Washington could thus help undo the extensive damage wrought by state politicians eager to legislate first and ask questions later. Such a move would be, in fact, entirely consistent with the Commerce Clause in the Constitution.

It would also be a reasonable first step in reestablishing market choice in health care. Thanks to the barrage of regulations, businesses, and individuals find themselves with limited and expensive options in most states. In Vermont, for example, there are just three carriers offering plans to small businesses; two, in the individual market. Thus, people in Vermont have more choice when it comes to yogurt than to insurance carriers.

Congress needs to step in. Just as Americans can shop around for mortgages, they should be allowed to look beyond state lines for health insurance. This would allow cheaper insurance – and more insured Americans.

– Dr. David Gratzer, a physician, is a senior fellow at the Manhattan Institute.

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