As Democrats scramble to assemble a health care reform package that a majority of the party can support, Republicans have agreed on what they claim is a quick and easy way to reduce health insurance costs. In delivering the Republican reply to the President’s recent joint-session speech, Charles Boustany of Louisiana offered the GOP plan, saying "Let's also talk about letting families and businesses buy insurance across state lines. I and many other Republicans believe that that will provide real choice and competition to lower the cost of health insurance."
It's an approach conservatives have been talking up for a while. Probably its most vocal proponent is Representative John Shadegg of Arizona, who introduced the idea formally this July with "The Health Care Choice Act of 2009." But a closer examination shows that it's the "Drill baby Drill" of health care reform--a cynical slogan masquerading as a serious public policy solution.
The basis for this approach is the work of the Council for Affordable Health Insurance (CAHI). CAHI describes itself as "a research and advocacy association of insurance carriers"--in other words, the insurance industry. Its position? That state insurance benefit mandates "increase the cost of basic health coverage from a little less than 20% to perhaps 50%". Based on this assumption, Republicans argue: To lower insurance costs dramatically, all you have to do is get rid of or drastically reduce benefit mandates.
Let’s start by looking more closely at what these "health insurance benefit mandates" really are. In our system, states license and regulate insurers who operate in their jurisdictions. They also have right to set the scope of coverage insurers must offer in order to do business within their borders. On occasion, the federal government has intervened to require that all health insurers include such things as coverage of adoptive children, mental health parity benefits, and minimum hospital stays for newborns and mothers in their policies. CAHI includes these federal benefit mandates in its study of "state" mandates--as if consumers could shop their way around them.
As for the states, many of the benefit mandates they have passed--screening for cervical, colorectal and prostate cancer; alcoholism and substance abuse treatment; diabetic self-management training and supplies and dental anesthesia--hardly qualify as "running amok." In their rhetoric, Republicans like to focus instead benefit requirements like acupuncture treatment (13 states) and massage therapy (4 states) cited by the insurance industry organization. But CAHI's report includes on its list of mandates services that insurers must offer, but for which they may charge an extra fee. In other words, it's not clear these really add to the cost of coverage for people who don't opt to have them.
It is possible to check this for one class of benefit, in vitro fertilization (IVF). CAHI reports that 15 states mandate coverage for IVF. And it is one of highest cost benefits CAHI. However, for two of those states, California and Texas, the mandate is merely that insurers offer it as an option. And many other states place significant limitations on the mandate. (There's a mistake, too: While New York specifically excludes IVF treatment from mandated fertility coverage, CAHI claims New York is one of the 15 states that require it.)
Finally, while claiming that an "independent Actuarial Working Group" provided CAHI with its "cost-range estimates," those estimates are misleadingly overbroad. Eighty percent of the benefit mandates are reported to add less than 1 percent to the cost of insurance. In other words, the vast majority of benefits have very little impact at all.
Not surprisingly, independent authorities have taken a different view of the impact of state insurance mandates. In 2003, the Government Accountability Office reported: "the additional costs associated with state-mandated benefits represented about 3 to 5 percent of total premium costs." In 2005, when asked to assess the financial impact of an earlier (and nearly identical version) of Shadegg’s Health Care Choice Act, the Congressional Budget Office determined "that in aggregate, this estimate assumes that if only those benefit mandates imposed by the states with the lowest-cost mandates were in effect in all states, the price of individual health insurance would be reduced by about 5 percent, on average." And, in 2007 a Rutgers University study, "Mandated Health Insurance Benefit’s: A Critical Review of the Literature" which considered CAHI’s work, among many others, found the following, "Despite exhaustive research, little compelling evidence exists that state health insurance mandates do, in fact, have a significant impact on" the cost of health insurance.
Selling insurance across state lines raises one more issue Republicans tend to ignore. Insurance companies keep costs down by using their volume-based bargaining power to make agreements with doctors, hospitals and other healthcare providers to get lower rates than any individual buyer could ever achieve. But insurers operating from one state may have a difficult time, on their own, bargaining in states where they have relatively small market presence. It is unlikely that an insurer could ever get a doctor or hospital in Massachusetts to agree to the same fee schedule that is acceptable in Idaho. Even Medicare, the largest single "player" in the healthcare market, hasn't figured out a way to pay the same reimbursement rate to all health care providers across the country. It would seem like the only way for insurers to offer cheap insurance across states lines would be to offer less comprehensive and effective coverage--which, if this proposal goes through, is exactly what would happen.
Update: Some small edits for clarity were made after posting.