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Shadegg Bill Promotes Healthy Competition
Let the states compete in a national health insurance market.


Sally C. Pipes
Medical Progress Today
May 5, 2006

Republican Massachusetts governor Mitt Romney is the current toast of the establishment press and pundits, having taken on health care, added more government, and required that people purchase insurance. Free market advocates, however, should look west for health care solutions proposed by Arizona Rep. John Shadegg (R). His bill, H.R. 2355, The Choice Act, has now reported favorably out of the Energy and Commerce Committee and will go to the Floor for a vote in June.

Shadegg's legislation, if passed, would create a national market for individual health insurance, by toppling requirements that people purchase only policies blessed by their state legislatures and insurance departments. Although his proposal has garnered less media attention, it is far more powerful than heaping on more government.

The basic idea is simple yet elegant. States compete for business with tax policy and regulatory policy. States compete in financial services, when people choose where to domicile trusts based, in part, on the nuances of state regulations. There's no reason that states should be insulated from competition when it comes to regulating health insurance design.

Shadegg's proposal would make state legislatures to think twice about piling on mandates such as acupuncture, in–vitro fertilization, and chiropractic procedures. It would allow people to purchase the plan of insurance they desire, rather than that desired by powerful producer group lobbyists. By expanding the market available to consumers, it will reduce the price of health insurance, and, therefore, reduce the rolls of the uninsured.

The individual health insurance market is a critical yet underappreciated piece of the nation's health care safety net. Although only 6.5 percent of Americans under 65 are covered by an individual plan, it is what analysts call "the residual market," the place where people go who do not have group or government coverage and would otherwise be uninsured. One thing we do know is that price is critically important in this market. The vast majority of policies are purchased in states where individual policies cost under $3,000 and family policies $6,000.

Anything that affects price will influence the number of uninsured. Consider that of the 46 million Americans classified by the Census Bureau as uninsured in 2004, 35 percent live in households earning incomes greater than $50,000. Eighteen percent live in households with incomes north of $75,000 annually. The largest single group are young, single, childless adults, who, with few assets to protect, often make the rational choice to forgo the cost of insurance for brief times in their lives. Offer up a product that truly protects them at an affordable price, and many could be convinced of the value of obtaining coverage.

Mandates, foisted on companies by state legislatures, play a huge role in the cost of insurance. In Massachusetts, for example, where community rating holds, the average cost of an individual plan is $5,257. In New Jersey, it's $6,048. The national average is $2,268. All told, states impose a staggering 1,863 mandated procedures on companies. A recent study by Duke University's Chris Conover estimates that the net effect of the regulatory burden placed on health care from the entire regulatory and legal environment is $128 billion. If the costs of all health care regulation were eliminated, the sum would be enough to extend insurance to each of America’s uninsured.

Shadegg's bill doesn't eliminate state mandates, it just puts states in competition with each other. The bill contains safeguards for consumers. A company is required to pass regulatory muster in its home state. In addition, it must register in any state in which it does business. The state insurance commissioners will ensure that it is financially sound—the government just won't have the option to impose plan design on a product blessed by another state. That's progress.

Sally C. Pipes is president and ceo of the Pacific Research Institute. She is the author of "Miracle Cure: How to Solve America's Health Care Crisis and Why Canada Isn't the Answer." Email: spipes@pacificresearch.org.

 
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