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Keep the Feds Out
Health insurance is a subject for the states.

Tuesday, May 9, 2006

TODAY THE Senate will consider a bill that would radically change the nation's health insurance market, shifting power from states to the federal government and to a regulatory regime lighter than nearly all states have now. Given that nearly 46 million Americans lack health insurance, it's clear that the status quo isn't working well. Yet the proposed bill is risky. Its preemption of state authority might stifle creative experiments in health policy that could help solve the long-term crisis of health costs.

The case for the Senate bill begins with a problem common to all regulation: By driving up costs it can end up hurting the people it's supposed to help. State regulations that require all health plans to cover a large number of medical conditions make it hard to offer cheap policies. This increases the number of people who end up uninsured. State regulations that cap variations in the price of insurance -- ruling, for example, that the riskiest individual cannot be charged a premium more than three times as large as that charged to the healthiest individual -- can have similarly perverse consequences: Healthy people will be offered policies that are expensive relative to their health status, so they will tend to do without insurance. Moreover, all such regulation can deter insurers from entering a market. The lack of competition drives up prices, causing yet more people to go without insurance.

There's a debate about how onerous these regulatory costs really are. But striking the right balance is something states can do. So the second part of the case for the Senate bill is that uncompetitive state markets for individual and small-group insurance can work effectively only if some uniformity is imposed from the center. For small businesses or individuals to buy insurance effectively, the argument goes, they need to band together in purchasing groups, and forming these groups is easier if it can be done across state lines. Federal legislation that made it possible to offer a standardized insurance policy to all small businesses participating in a pool organized by a national association might stem the growth in the ranks of the uninsured.

This argument, however, has to be balanced against the risk of preempting state power over health policy. The backers of the Senate bill, led by Mike Enzi (R-Wyo.), ought to concede that viable purchasing pools can already be created within large and medium-size states; the need to recruit people from other states is powerful only in states with small populations (perhaps not coincidentally, one such as Wyoming). They should also concede that, with health policy at the federal level paralyzed, the most promising experiments in containing costs and expanding coverage are taking place at the state level; there's a risk in narrowing states' room to maneuver. If the bill's backers concede these two points, their legislation should not pass.

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