For Better Health Insurance, Let Consumers Buy Across State Lines

IN LAWRENCEVILLE, A TOWN in southern Illinois just nine miles from the Indiana border, with fewer than 6,000 residents in the 1940s, choices for shopping were limited. Across the border was the larger town of Vincennes, Indiana, which was three to four times the size of Lawrenceville. Everyone from Lawrenceville went to Vincennes to shop, where they were sure to find more choices and better prices. They would even go to Vincennes for groceries. If a person needed a suit, he or she went across the border to Indiana to buy it.

Pat Rooney, one of the co-authors of this article, grew up in Lawrenceville, Illinois. His family did what we have just described.

Today, when we want to buy something from another state, we do it without giving the matter a second thought. The Commerce Clause of the U.S. Constitution allows us this freedom. In this age of and eBay, we can buy most things across state lines.

But probably not health insurance.

Most people don’t realize that even today, in the 21st century, Americans cannot cross a state line to buy health insurance. Congress passed a law in 1945 declaring insurance not to be interstate commerce, shortly after the Supreme Court had determined that it was. At issue was the question of who should regulate health insurance—the federal government or the states—and Congress voted to vest regulatory power with the states.

But Congress can easily allow the cross-state purchase of insurance without assuming federal regulatory control of the industry. After all, we buy cars in other states. We get credit cards and mortgages in other states. We ought to be able to buy health insurance wherever we can get the best coverage and the best price.

Nothing Matters More

Why is this matter so important? Because it would enable people to buy health insurance where they could get the best buy—and therefore, be able to be insured. Individual health insurance rates differ among the states. State mandates are driving up the cost of health insurance unmercifully in states like New Jersey and New York. Nothing would help the consumers in these states more than letting them go beyond state borders to buy the insurance coverage they want for the price they can afford.

The beauty in this approach is that we don’t need to change the laws in New Jersey or New York or any other state. These states can continue to regulate the insurance companies that market in their states as much as they want to. And if the people of these states want to pay for all the benefits mandated by their state, they’re free to do so. But if the citizens want to pursue other options—get more choices and better prices—then they would be free to do that as well.

Roadblocks to Freedom

It turns out that many state insurance commissioners oppose giving their citizens such freedom. Why? Because they want to be able to tell the consumers in their state what health insurance coverage they can or cannot buy rather than let the consumers make their own choice.

The Blue Cross and Blue Shield Association is in league with this opposition. And why is that? Because there are several states, particularly in the Northeast, where Blue Cross is the dominant force in the health insurance market. Even if it’s an unaffordable market, it’s their market, and they want to keep it. Blue Cross and Blue Shield’s opposition to this bill is well known and understood in Washington, D.C.

This collusion between state regulators and large insurers is the same story of business trying to get government to protect its market share that has taken place throughout history. In 1908, Henry Ford began selling Model Ts at the low price of $825. Many other auto manufacturers were making cars at the time, but their vehicles were being sold at closer to $10,000. Knowing they couldn’t compete with the $825 price tag coming out of Detroit, manufacturers in neighboring states sought protection from their state legislatures. The legislators didn’t disappoint them: Several states pronounced the Model T unsafe and unfit to drive on their roads. Of course the charge was baseless, but the companies felt they needed such legislation to protect them from financial ruin.

Thankfully, the federal government finally stepped in and passed a law requiring all states to accept the Model T and any other vehicle that met the safety standards.

It’s time for history to repeat itself.

There is no reason why large insurance companies and their cronies in state government should be allowed to shut out legitimate competition from other states. It wasn’t right when the automakers did it in the early 20th century, and it isn’t right for the large insurance companies to do it today.

Marketplace freedom would be a freedom for customers, not for insurance companies. Customers would become free to buy health insurance across state lines.

Health Care Choice Act

The legislation that can achieve this progress is the Health Care Choice Act (H.R. 4460) introduced by Rep. John Shadegg (R-Ariz.). This bill allows people to buy health insurance that is approved and being sold in another state. The policy must conform to state law where the health insurance policy is filed, not to the state where the insurance purchaser lives.

The Health Care Choice Act protects consumers by ensuring a level of financial stability among the insurance companies and by ensuring an independent review mechanism for all who purchase coverage under the terms of this legislation.

What would the proposed legislation do for the insurance market? Well, what did it do for the automobile market?

Not in My Backyard

Critics say interstate commerce will create fly-by-night insurers operating in less regulated states that will take advantage of consumers.

“The best analogy for what to expect here is probably our experience with interstate banking,” the Wall Street Journal has said, “which has indeed resulted in operators moving to friendly climes like Delaware and South Dakota but which has also proven nothing but a boon to consumers. A national market has allowed the growth of big, financially stable institutions that have earned consumer trust.”

The Blue Cross Association says interstate commerce would jeopardize the risk pool (the overall pool of money that makes insurance possible by allowing the healthy to subsidize the sick). But the healthy are already out of the insurance pool in the high-cost, heavy- mandate states. “A larger national market can only improve matters,” the Wall Street Journal argues.

“Choice and competition are the great taskmasters that relentlessly deliver lower prices and higher quality to American consumers,” comments Sally Pipes of the Pacific Research Institute. “This is as true for automobiles as it is for artichokes, computers as it is for camping gear. The only exceptions are when government policies limit choice and thwart competition, which is exactly the case with individual health insurance based on the state in which they reside. It’s time to end the states’ monopolies.”

An Idea for the People

In the current monopolistic environment, millions of Americans are afraid to move, switch jobs, or start their own businesses for fear of losing their health insurance.

That fear would go away if they were allowed to shop nationwide for policies that would follow them wherever they went.

America’s policymakers must decide whom they’re going to serve: the special interests or the people. The special interests may not want change, but the people clearly do. A Zogby International poll has shown that 72 percent of Americans think people should have the option of buying a policy that is approved and available in another state. According to Zogby, “A majority of people in every sub-group—including at least two-thirds in most—supports this. Hispanics (86 percent) and African Americans (85 percent) are the most likely to be in support, as are four in five single adults and people with annual household income of $15,000-$24,999 and $35,000-$74,000.” Further, “more Republicans (20 percent) than Democrats (12 percent) or independent voters (13 percent) are opposed.”

The small-business community represents the largest portion of the uninsured population. In a recent National Federation of Independent Business member ballot, 80 percent of the members said that individuals and the self-employed should be allowed to purchase health insurance coverage across state lines.

J. Kevin A. McKechnie, the staff director of the HSA Council, part of the American Bankers Association, talks about mandates imposed on health insurance plans by states. Writes McKechnie: “[I]nvolving government in health care choices brings politics to the doctor’s office. That’s why dance therapy and hair replacement procedures are mandated as covered benefits in some states. They’re expensive, of dubious medical necessity, and arise less from considerations of public health than from good lobbying. If you think health care is expensive now, wait until the government makes it ‘free.’”

Let’s Get It Done

Just as it is with the case of health savings accounts, the Health Care Choice Act will not single-handedly fix all the problems in American health care, but it is the one reform that could accomplish much very quickly. It’s common sense. It’s long overdue. We need to get it done.

Until we modernize the sale of individual health insurance in America, the only affordable alternative for many is to establish residency in an affordable state, buy insurance there, then move back to the state in which they currently reside, while keeping the insurance they bought elsewhere. Consumers should be free to buy health insurance wherever they can get the best coverage for the best price.

Mr. Rooney is a pioneer in the development of health savings accounts and is the former CEO of Golden Rule Insurance Company. Rooney helped build Golden Rule into the largest seller of individual health insurance policies in the country. Mr. Perrin is President of the HSA Coalition. This article is excerpted from Rooney and Perrin’s book America’s Health Care Crisis Solved, © 2008 by J. Patrick Rooney & Dan Perrin, published by John Wiley & Sons, Inc.