Jonathan Chait

The Big GOP Health Care Idea

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The single most popular health care idea emanating from the right is to allow Americans to purchase health insurance across state lines. What a stupid idea, making people buy insurance only within their own state! Here's fabulist Betsy McCaughey making the case in a Wall Street Journal op-ed:

Both parties should agree to liberate consumers to buy insurance outside their own state. A healthy 25-year-old New Yorker could cut his costs by two-thirds if permitted to shop on e-healthinsurance.com and buy coverage in another state.

Now, think about this for a minute. I doubt her precise figure, but let's grant the premise that young healthy people could save a lot of money from such an arrangement. Why is that? Is it that out-of-state insurance companies are that much more efficient? No, of course not -- profit and overhead don't account for anywhere close to two-thirds of insurance premiums.

The young and healthy would save money because they'd find an insurance plan from a state with very limited regulation. Say, those plans would operate in a state that doesn't require insurance to cover any medical conditions that are unlikely to afflict a young, healthy 25-year-old. What happens is that the health care industry becomes like the credit card industry. Some small state realizes it can attract a lot of business its way by winning the race to the regulatory bottom.

So then, effectively, we've almost completely eliminated all regulations on health insurance. Conservatives will say that's great. And certainly the healthy 25-year-old would be better off. But, of course, the effect of those regulations was to force insurers to cover medical conditions that older or less healthy people have. As a result, all the young healthy people have split, and costs on everybody else go up. The young and healthy are paying higher rates because of these regulations. But the same regulations let the old and sick pay lower rates -- and they're the people who have the biggest trouble buying insurance as it is. Allowing interstate sale of insurance isn't just a non-solution, it's a massive anti-solution, worsening all the problems of the status quo.

Either that, or there really is a huge free lunch just sitting out there and nobody's taking it because the Democrats just love regulation too much.

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