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The Health Care Choice Act: Eliminating Barriers to Personal Freedom and Market Competition Robert E

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The Health Care Choice Act: Eliminating Barriers to Personal Freedom and Market Competition Robert E WebMemoPublished by The Heritage Foundation No. 1164 July 17, 2006 The Health Care Choice Act: Eliminating Barriers to Personal Freedom and Market Competition Robert E. Moffit, Ph. D. While interstate commerce in goods and services The legislation carefully balances the interests of is routine in virtually every other area of the the states where health insurance is bought and national economy, such as banking and financial sold. States where health insurers are licensed to services, it is largely frustrated in the health care sell their plans retain the primary authority to reg- sector by law and government regulation. For indi- ulate the health insurance product. These rules viduals and families, this means that they are not usually govern such items as payment of premi- able to secure the kind of coverage they want at the ums, claims processing, and appeals and griev- prices they wish to pay. The Health Care Choice Act ances. The bill also establishes a federal floor for (H.R. 2355 and S.1015), sponsored by Representa- fiscal solvency requirements, based on National tive John Shadegg (R-AZ) and Senator Jim DeMint Association of Insurance Commissioners stan- (R-SC), would amend current law to allow for dards, for plans competing in interstate commerce. interstate commerce in health insurance plans When health plans are sold to residents across state while preserving states’ primary responsibility for lines, the purchasers would be entitled to their the regulation of health insurance. These changes state’s rules enforcing consumer protection, such as would broaden and intensify competition among its fraud and abuse laws, rules governing unfair health plans and medical providers, encourage a claims, or financial or solvency protections. More- serious review of existing health care regulation in over, under the terms of the bill, any insurer who the states, and expand the choice of millions of sells in another state would still be subject to that Americans of more affordable health insurance state’s premium taxes and any assessments for state plans. The result: reduced health care costs and high-risk pools, which cover costly or uninsurable greater access to health care coverage. persons. A key advantage of the legislation is that it would not preempt, undermine, or override inno- What the Bill Does vative state health care reforms; it would instead The bill would reform the individual health give ordinary Americans greater access to different insurance market by allowing individuals and fam- types of health care coverage. ilies who reside in one state to buy a more affordable health insurance plan domiciled or licensed in another state. Likewise, health insurance plans This paper, in its entirety, can be found at: would be able to sell their policies to individuals www.heritage.org/research/healthcare/wm1164.cfm and families in every state of the union, just as other Produced by the Center for Health Policy Studies Published by The Heritage Foundation companies do in the sale of a wide variety of goods 214 Massachusetts Avenue, NE and services in every other sector of the economy. Washington, DC 20002–4999 (202) 546-4400 • heritage.org Nothing written here is to be construed as necessarily reflecting the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress. No. 1164 WebMemo July 17, 2006 Improving the Health Care System the firm, with dramatically less choice for individ- The Health Care Choice Act would substantially uals who work for small firms. improve the functioning of health care markets Not surprisingly, premiums sharply vary from and, through greater breadth and intensity of com- state to state, reflecting the economic conditions in petition, the delivery of health care services from the state, the prevailing wage rates and medical medical professionals. practice patterns, and the impact of state law and Broader and More Intense Competition. State regulatory policies. Among 50 largest U.S. cities, health insurance markets are increasingly concen- monthly premiums for individual, self-only poli- trated and less competitive, often dominated by a cies range from a low of $54 in Long Beach, Cali- 2 few large insurers. Market consolidation has been fornia, to $334 in New York City. While local accelerated by mergers and acquisitions, as well as conditions would obviously continue to influence by rigid state government policies that have dis- the local premium price of a plan licensed in couraged carrier participation. In the individual another state, there is still a great opportunity for market, insurance companies’ participation varies, individuals and families to secure more affordable and many markets are dominated by fewer and health policies through a new national market. fewer number of large carriers. In many cases, this Beyond price is the more important issue of per- consolidation has been facilitated by misguided sonal freedom. In the individual market, the con- state government policy. Likewise, in the small tent of a health benefits package is often group market, the declines are dramatic. In Mary- determined by state government officials, who land’s highly regulated small group market, for determine which benefits, medical procedures, and example, between 1995 and 2004, the number of practitioners must be reimbursed. State laws and participating insurers dropped from 37 to 9; two of regulations include, nationwide, 1824 benefit the largest health insurers now account for the mandates, according to a recent study by the Coun- enrollment of 94 percent of covered lives; and 58.8 cil for Affordable Health Insurance.3 percent of small firms do not enroll their employees 1 State legislators say these benefit mandates serve in that market. a socially beneficial purpose, but they are often Dysfunctional state insurance markets are often imposed for narrow political reasons. As Alain C. characterized by higher costs and fewer choices for Enthoven, Professor of Management at the Gradu- individuals and families. Interstate commerce, with ate School of Business at Stanford University, new carriers and innovative options, would give observed: “Often these mandates are legislative these persons a new set of options for health care responses to the demands of narrow interest pro- coverage that they do not have today. The resulting vider and consumer constituencies, such as disease competition would also introduce new market specific advocacy groups or nurses associations, for pressures to control costs. instance. The mandates allow legislators to accede Greater Personal Choice and More Affordable to the demands of the more vocal and powerful Coverage. For most Americans, the terms and con- groups without having to vote for the taxes to pay ditions of health insurance are determined by the for them. Often these benefits are not what the decisions of employers and health plan administra- employment groups that purchase health insurance tors. The level of choice available to workers and would choose to buy on their own (if they were, 4 their families is largely correlated with the size of there would be no need for the mandates).” Simi- 1. The Maryland Health Care Commission, ‘Short and Long Term Strategies to Ensure the Viability of the CSHBP and The Small Group Market,” Presentation of the Commission staff, September 15, 2005. 2. EHealthInsurance.com, ‘”The Most Affordable Cities for Individuals to Buy Health Insurance,” June 28, 2005, p. 7 , at http:/ /www.ehealthinsurance.com/content/ReportNew/06.28.05MostAffordSinglesReportFinal.pdf. 3. See Merrill Matthews, Director, Council for Affordable Health Insurance, testimony before the Subcommittee on Health, Committee on Energy and Commerce, U.S. House of Representatives, June 28, 2005, p. 4. page 2 No. 1164 WebMemo July 17, 2006 larly, many individuals would also not choose to The rapid expansion of information technology, purchase the benefits mandated by state officials. combined with a growing demand for greater Benefit mandates can also be ethically controver- transparency of information on the quality and sial, such as artificial contraception and in vitro fer- price of medical procedures and performance, is a tilization. Under current market arrangements, welcome development. All of the available infor- even if individuals object to certain procedures as mation on price, quality, and performance is use- unethical or immoral, they are nonetheless forced less, however, unless individuals and families can to finance them through their health insurance pre- act on it directly by controlling the flow of dollars miums. Especially with the growth of new medical in the health care system. procedures and therapies that are ethically contro- With interstate commerce in health plans, large versial, these challenges to personal conscience are national health plans and large networks of provid- certain to grow and become increasingly divisive.5 ers would compete among themselves to offer However, with an open market stretching from greater choice, drive costs down, and improve coast to coast, individuals could buy what they quality and efficiency. While larger pooling want, including health benefits and medical proce- arrangements would surely reduce adverse selec- dures that are compatible with their ethical, moral, tion and administrative costs in the insurance sys- and religious convictions. tem, an added benefit of national plan competition Promoting Value. Today, health care competi- would be the emergence of new value-focused
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