Health Politics

Currently, the fifty states and various territories of the US have different insurance regulations, which is a barrier to the entry of new companies into the states with small insurance markets and irregular regulations, requiring the insurance companies to learn and comply with an entirely new set of rules. In the case of price regulation, the companies may need to conduct entirely new actuarial studies of whether entering the market would be cost effective. The result of this patchwork of regulation is that small insurance markets have few players, which should in theory make health insurance less accessible to individuals and small groups buying insurance on the market.

Three weeks ago, I attended hearings by the House Committee on Financial Services on a proposal which would centralize insurance regulation and lower barriers to entry of new markets. As an aside, the hearings were boring, and filled with unctuous insurance industry lobbyists who paid professional line standers to stand in line for them starting over an hour before the hearings were to begin; worse was the whining from the unfortunates whose line standers didn't arrive in time or didn't arrive period. And No One would share their hand by telling me what they think of the proposal.

The aspect of this proposal which is being discussed is the one above --- making markets more competitive and so hopefully more efficient, which in turn should help the uninsured gain access to insurance --- is an aspect that no one could oppose. A fundamental part of American culture is a hatred of bureaucracy, and the idea of 50 different sets of regulations should make any good American recoil with disgust. If the centralization would be mandatory, effectively repealing state insurance regulations, the question becomes more complicated.

The proposal raises a few questions to me:
1. Do small insurance markets cause uninsurance --- that is, we can't prove causality, but are there more uninsured in small states with unusual regulations than in larger states? This question may not be answerable because small states have different demographic and economic profiles, so we may not be able to compare their rates of uninsured with the size of the insurance market. e.g., if the former states are rural states with few minorities and immigrants, weak unions, and many small companies, and the latter are more urban states with large industry, strong unions, and many minorities and immigrants, there are too many factors correlated with lack of insurance.

2. What, precisely, are these regulations that are barriers to entry?

3. State insurance regulations are generally made for political rather than economic reasons, so some regulations could be well-intentioned, but have negative effects on access for the uninsured. For instance, about five states have regulations that ban catastrophic-only insurance coverage, causing otherwise healthy people to need to choose between being totally uninsured and paying higher premiums for more comprehensive health insurance than they want --- making the market inefficient; on the other hand, such a regulation can be seen as protecting the consumer, who might not realize exactly what their insurance should cover. Can we grossly oversimplify and come up with some assessment of what proportion of state insurance regulations are valuable and which are pernicious?

4. What regulations would be put in place by a federal system, and how would these compare with the current state system? Politically, it sounds like there will be no price controls, for instance: while price controls can be seen as a market inefficiency, they might be protective against a price death spiral.

5. Are any state regulations necessary in order to be responsive to local market conditions? That is, is it possible to create a federal system that manages to apply to all of the insurance markets?

6. What would the effect of this system be on the self-insuring inter-state companies which are currently exempted by ERISA from following state insurance regulations, but tend to voluntarily follow many of them just for good relations with their employees? That is, would this system apply to these companies? Conversely, would these companies change their coverage somehow in reaction?


All of these questions are so general as to be meaningless since they cover such a vast system which, as much as it is studied, probably has more unanswered questions than answered ones. In addition, it's hard to know which of these questions are relevant. e.g., Self-insured companies are currently not involved in these questions of state insurance regulations at all, yet it's hard to imagine that changing the regulation structure wouldn't affect them at all. Nu?