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Hoffman: State lawmakers can end ban on insurance sales across state lines

Hoffman: State lawmakers can end ban on insurance sales across state lines

Wayne Hoffman
October 12, 2009
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October 12, 2009

Idaho has a law that prevents the state’s residents from shopping for the lowest possible health insurance premiums. The restriction is simple: No one can sell insurance in Idaho without being authorized by state regulators to do so, even if that insurer is already legally recognized to operate in another state.

Our statute is mirrored in all 50 states, hopelessly thwarting the free market when it comes to health insurance.

The state Department of Insurance says eight providers of individual health insurance plans are authorized to do business here. While my family of four could save as $1,000 a year buying health insurance from a company authorized to do business in Utah, we can’t. That insurer isn’t recognized by Idaho’s regulators.

Critics of interstate insurance claim it would raise the cost of policies because healthy people would leave older, less healthy people behind in a smaller, more expensive risk pool. Supporters say healthy folks are already being priced out of insurance, and so the insurance rolls are already missing the people who could help drive the risk and the costs down. Idaho also loses out on bargain pricing because the population base is so small. Last year, the Carlson School of Management at the University of Minnesota found that the number of insured Idahoans would leap 18 percent if states would drop their protectionist insurance laws. As the Cato Institute’s Michael F. Cannon correctly notes, this is healthcare reform, and the government “wouldn't even have to raise taxes or create a single new government subsidy.”

The regulatory environment we have today is the result of congressional passage of the McCarran-Ferguson Act of 1945, which said insurance is not subject to federal anti-trust laws and can continue to be regulated at the state level. Many states have used their authority to guarantee coverage of a variety of ailments and treatments in every insurance policy offered in their state.

Today, the states have collectively passed 2,133 mandates on health insurance companies’ policies, according to the Council for Affordable Health Insurance. The cost of each policy is driven higher by mandates on what health conditions insurance must cover and by the fact that state regulators make it impossible to shop for plans with fewer or different bells and whistles. Idaho has the fewest health insurance mandates in the country – just 13, according to CAHI.

The small number of mandates should make Idaho an attractive place to get insurance, particularly for residents of states where the insurance market is excessively regulated and premiums are inflated. Dr. Devon Herrick of the National Center for Policy Analysis says the exodus of people from states with excessive mandates may force policymakers to reconsider the restrictions they have placed on health insurance plans, further driving down costs.

Idaho Department of Insurance Director Bill Deal is skeptical about how that would work. While he’d rather see the states and not the federal government retain control of the insurance market, he wonders which state regulatory agency would help the Idaho consumer whose Nevada insurer was causing grief. Deal also wonders which state would collect the tax assessed for each premium sold.

New Jersey Assemblyman Jay Webber worked all of these issues out, and came up with legislation for his state that would have allowed his state’s residents to buy Idaho insurance. The bill was thwarted by politicos Webber said “need to justify universal healthcare.”

Everyone’s waiting to see what Congress does with healthcare. But Idaho lawmakers need only amend our anti-competition law to say that any insurer recognized by another state can sell policies here. Disputes with insurance providers could be handled by the Department of Insurance or under the state’s existing contract laws. The result will be the restoration of the free market, more competition, more choices for consumers, lower insurance rates and more people covered by insurance. That sounds infinitely better than what Congress is trying to serve up.

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