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Health Reform Creates Chaos With 50 States, 50 Sets Of Rules

David Gratzer
Investor's Business Daily
May 31, 2011

'Toto, we're not in Kansas anymore." The line from the Wizard of Oz comes to mind with reports of the ongoing implementation of ObamaCare. In Kansas, the state government is reportedly charging ahead, excited to receive $32 million as its share of $241 million in federal grants. Kansas is eligible for the cash because it will be among the first 7 states to launch one of the health-insurance exchanges the law calls for.

There's some irony here. After all, the State of Kansas is also suing the federal government to declare ObamaCare unconstitutional. But the bigger irony is that anyone's in any hurry to open a health exchange at all, given current legal constraints.

Although ObamaCare is mostly a patchwork of bad ideas, President Obama's earliest proposal for health reform actually included a very good idea: the plan for a national health exchange, similar to what federal employees use to buy their own health insurance.

A national insurance market would have allowed consumers to compare insurance costs across state lines. This would have helped to curb high costs in states which artificially raise the price of health insurance through unnecessary benefit mandates and other regulations.

If the president had carried through with his rhetoric on a national health exchange, consumers could soon be buying insurance plans that suited them directly, from any state they chose, comparing low-cost and high-cost plans without regard for artificial regulatory boundaries. In turn, lower-cost insurers could have marketed new products to lower-income customers more easily, since it would be easier to make a fair return on a basic health plan if it could be sold to a national market.

In the current model, discount insurers must re-price and repackage insurance plans for 50 small markets and 50 sets of regulations.

But Obama's support for a competitive marketplace was short-lived. Liberal politicians at the state and national level woke up and realized that a national market would bring to an end their habit of micromanaging insurance rules and curb their ability to reward different constituencies with costly "benefit mandates" which serve in practice as a subsidy for provider lobby groups and special interests.

It didn't take long for the president's national health care marketplace to be refried, reheated, and served up as 50 individual state websites instead.

Remember: One of the stated objectives of ObamaCare was to foster free-market insurance competition to cut prices.

Now, with 50 uncompetitive state markets and new federal regulations on what is or isn't an acceptable insurance plan on top of existing state laws, there will actually be less room for price-cutting competition in health care. You can expect insurance costs to rise as a direct result.

Even isolated to individual states, the health exchanges will serve a purpose: Consumers using an exchange to buy coverage will have an easier time accessing the hundreds of billions of dollars' worth of new federal insurance subsidies that ObamaCare provides.

While that's good short-term news for American families who need the subsidies to purchase coverage, it only serves to increase the health care system's dependence on money borrowed by governments on your credit. It will do nothing to make America's health care system more affordable in the long term.

To understand why ObamaCare is such an enormous policy failure, it helps to look at the rest of the online world and the online markets we all know and love.

EBay works because a collectible you couldn't possibly sell at a garage sale in Centerville, Iowa, might sell quickly if buyers in Texas, California and Georgia knew it was for sale. does well partly because it can stock anything it wants, trumping bookstores in your hometown that might not sell the Civil War book you're looking for.

Recreate these online marketplaces with ObamaCare-style rules and you'll understand the problem. Imagine shopping on Amazon, but not being allowed to buy books that are already sold by retailers within your home state. Imagine an eBay where customers have to physically live in the same state as the person making the sale before they can enter a bid.

Yes, Kansas will be a national leader when it opens up its health exchange, which it expects to do sometime in 2013. But here's the problem, Toto: When the Kansas health exchange opens online, you'll still be trapped in Kansas at least as far as markets and health-insurance regulations are concerned.

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

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