Posted by: Jeff | February 26, 2010

Selling Insurance Across State Lines

Not surprisingly, this got talked up a lot by Republicans yesterday as well. (Rep. Marsha Blackburn was particularly vehement, and particularly vapid, on this subject.) To reiterate points I’ve probably discussed before, and touch on themes in my previous post, letting insurers sell across state lines is attractive on the surface but substantively pernicious.

First, the surface level attractiveness. Right now, we have a fractured health insurance market. Each state has its own regulations and requirements, which means health care plans designed for state X can’t be sold in state Y. The result is that we don’t have a national market for health insurance, we have fifty state markets. And that does indeed stifle competition, which drives prices up and allows some providers to achieve a virtual monopoly in particular states. And allowing providers to sell plans designed for state X in state Y would indeed create a genuine national market, complete with the competition (sort of) and cost saving you would get with that kind of market size.

Now to the underlying perniciousness. The key thing to realize about the Republican approach is that it leaves the state-by-state regulation intact. So an insurer can design a plan which meets the regulations of its home state, but then sell that plan in all fifty states.

As lots of liberal bloggers and commentators have reiterated again and again, this creates what has been dubbed the “race to the bottom.” Each individual state will want to attract insurance providers and the jobs and business they bring. So a bidding war will emerge between states to see who can gut their regulations the most to attract the most providers to their state, and you’ll get the same thing that happened with the credit card industry. Long story short, whichever state comes up with the most lax insurance regulation will effectively be the state that sets regulation for the plans sold throughout the entire country. And to beat another drum, lax regulation means bad information for consumers, which means bad decision-making, which undercuts competition and encourages exploitation.

It’s a great outcome for the insurance companies, but it will leave Americans largely unprotected. Not to mention the inherent bizarreness involved when the legislature of one state is able effectively determine regulation for an industry across the entire nation. Simple fairness would seem to require regulating at the federal level – if these plans are to be sold to a market encompassing all Americans, then a legislature representing all Americans should be the one setting the regulation. Yes?

What’s so infuriating about this is how obvious a compromise position on this matter should be; move the regulation to the national level, so the Democrats get the consumer protections they want, and the Republicans get the truly national market they (and, in fairness the Democrats as well) want, and all the benefits of competition, cost reduction and economies of scale which goes with it. But no. The Republicans remain committed to absolutely no new federal regulation under any circumstances. It’s leave regulation to the states, or nothing. Their position has no practical value, and no substantive policy justification. It’s pure, abstract, unthinking ideology.


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