Arizona’s Senate has approved a law letting out-of-state companies sell health insurance in the state. It’s a decent idea in principle and I would have voted for it were I a member of the legislature. But I have doubts about how well it will work. There are at least three problems that I see.
First, there are huge regulatory hurdles to letting an insurance company regulated in one state sell in another. There’s a strong possibility of importing price controls and all sorts of other anti-market regulations from one state to another. Arizona’s insurance department is going to have a mess on its hands at minimum. It would have been much better and cleaner to do something like this under a quasi-federal regime like the one former Rep. John Shadegg (R-AZ) proposed.
Second, many free-marketers overstate the potential of interstate insurance choice. The theory is that states propose lots of pointless mandates on what group health plans have to cover and, as a result, many get priced out of the market. This is true. . .to some extent. But it’s a bit more complicated than this. When you look at it, mandates that are expensive aren’t stupid and mandates that are stupid aren’t expensive. The single most expensive commonly applied mandate, “mental health parity” (which requires insurers to provide mental health coverage under basically the same terms as they provide physical health coverage) is a good idea with overwhelming empirical support and, in fact, is required by federal law independent of the Patient Protection and Affordable Care Act anyway. On the other hand, widely derided “stupid” mandates such as podiatry and toupee coverage (for chemotherapy patients) amount to a penny or two of extra cost and, sometimes are not be as stupid as they seem. For example, diabetics who frequently see podiatrists have a lower rate of expensive amputations and podiatrists charge less than MDs.
Finally, the PPACA provides lots of national-level mandates anyway. A few are already in force and nearly all will go into effect by January 1, 2014. This will hugely limit the impact of interstate insurance choice even where it exists. Many companies, seeing PPACA on the horizon aren’t going to bother to go through the significant expense of entering a new market with new products when most benefits will go away in two and a half years anyway.
Bottom line: two cheers for Arizona but I doubt that much will come of the legislature’s valiant effort.
The United States needs to do the same.
Sen. Tom Coburn (joined during his time in the Senate by Barack Obama) has drawn a lot of attention to the enormous amounts of waste in federal office space. There’s more that can be sold or, perhaps in some cases, rented: land used for mining, grazing, and timber activities that produce a private benefit should either be sold outright at auction or leased to private interests at much higher rates than the mere pittance the government now collects for these activities. There’s certainly a lot of federal wasted space and, in a lot of cases, the private market could manage it better.
There’s an interesting article in the Chicago Tribune about State Farm’s plans to open a company-run office in Chicago’s Lakeview neighborhood (the office apparently won’t actually sell insurance lest it compete with the captive agents who sell State Farm Products, but will instead will provide a sort of hang-out spot where free wi-fi and financial advice will be available).
This seems like a very smart idea to me: agents do have a role in the future of insurance only if they can reinvent themselves as rather broad financial service advisors (good ones already have.) For a fair number of people, getting to know and like company (getting people to like State Farm seems to be the aim) may be a very smart way to get products out there.
Until next week,
Eli Lehrer, vice president of Washington, DC operations