Monday, January 18, 2010

Fisking Another Health "Reform" Meme [UPDATED]

[UPDATE: Mike has a different take on this issue. I suggest reading both.]

In addition to tort reform, one of the alternatives being touted by those opposed to ObamaCare is the pithy "interstate sales" idea. The premise is that under current regulations, it's illegal for a New Yorker (for example) to buy an insurance policy approved for sale in Georgia but not the Empire State. If only this weren't so, goes the argument, people would be able to find much better "deals" on their health insurance.

Um, no.

I agree that, as a practical matter, there would probably be a (very) short term benefit as the folks from higher-premium jurisdictions (should we be calling those "Cadillac States?") rush out to buy Ohio plans. But this would quickly sputter, for a number of reasons:

First, insurers in Georgia (for example) base their premiums on health care costs in -- of all places! -- Georgia. When they see an influx of buyers from Manhattan, they'll have to raise everyone's rates (including Georgians') to make up for the higher cost of health care in the Big Apple.

More important, though, is that no one seems to be addressing the more fundamental, and thus critical, question: Why is health insurance so much more expensive in New York than Georgia (or Indiana)? There are a number of factors in play here, but the two most important are:

■ Cost of health care. For better or worse, health care costs more in some areas than others. If you try to equalize that across the country, then folks in higher cost areas will see a short-term decrease, at the expense of those in lower cost states.

■ The cost of mandates. States like New York York and New Jersey are "community rating" states, which means that carriers can't charge different rates based on health, age, or sex (among others). This leads to much higher rates for everyone. States like Georgia don't, so the cost of insurance is much lower.

Of course, addressing that critical question doesn't fit our leadership's current narrative, so it doesn't get asked.

Let alone answered.
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