Stephen Feman
Competition and choice are characteristics of a free and open marketplace. Some have suggested that a more open market for health care insurance could resolve a few issues in the present health care debate. That would help, because increased competition among health care insurance suppliers might reduce costs. This came to mind during the recent California health insurance shock. If you hadn’t noticed, many people were surprised when a leading California health care insurer proposed a 39-percent rise in the price of premiums for those individuals who buy their own insurance. It was noted that this price increase came at a time when the largest health care insurers had an average profit increase of 56 percent, even though the economy was down. As those insurers indicated, the profit had resulted from the prior year’s activities, while the proposal to raise premiums was related to an expected change in future costs.

Rather than paying this high premium, some purchasers may want to shop for something less expensive. Those insurance policy purchasers might want another company — perhaps one that reinvested some of its profits in a way that kept its premium prices lower. While trying to visualize how this might play out in Missouri, the question arose: Would people who find coverage unaffordable in this state buy less costly policies from another state, if available? Then, if some lower-priced policies were available, would some of the currently uninsured take advantage of that situation? If that were so, would that resolve some of the problems in our health care dilemma? Are we seeing a situation develop in which marketplace competition might benefit our community? To learn more about this, I thought it reasonable to see how this would express itself in Missouri.

My first concern was whether there were any significant barriers to such competition. This was examined by the O’Neill Institute at Georgetown University recently. As many know, states have a primary role in regulating their own health insurance industry. The federal McCarran-Ferguson Act spells out “the respective roles of the federal and state governments in regulating health insurance.” However, the O’Neill Institute’s answer, in rather general terms, is that this barrier can be bypassed. Although the existing act separates federal and state roles in regulating health insurance, the people at the O’Neill Institute believe that legislation could be designed around the business end of insurance, specifically relating this to interstate commerce. But the key point is that yes, it can be done.

Given that it can be done, is that what we want to do? What will happen if many people from Missouri buy less-expensive health insurance policies from a company headquartered across state lines called, say, Out-of-Missouri Co. (OOM)? One can imagine that if everyone purchasing OOM insurance stays healthy, more people would be insured but at a lower immediate cost. At first, that appears good. But what if my neighbor with hypertension and diabetes buys an OOM policy, too? If that happened, the managers at OOM would need to raise the premiums for everybody; that is because OOM Co. would be insuring more sick people. That could cause two results: 1) the people in OOM’s home state would have to pay a higher premium price, and 2) so would we. If the resulting price remains lower than any comparable Missouri price, we are better off; but we may have harmed our out-of-state neighbors by causing their prices to increase.

Perhaps we need to look at why the OOM policy was lower than the Missouri policy in the first place. There could be several reasons for this. Those that are most common are the following.

  1. The people in the state where OOM is registered might be healthier than the people of Missouri. That could be true, but if OOM Co. were swamped with sick Missourians purchasing their policies, its costs would increase.

  2. The insurance regulations in the state where OOM is registered might be different, and the insurance coverage being offered might not be the same as what is needed in Missouri. The regulations in the state where an insurance company is registered are ostensibly intended by that state to protect the residents from their most common problems. The distribution of disorders in Missouri may not be the same as in that other state, so the insurance may not satisfy Missouri's regulatory requirements.

  3. Health care costs vary geographically. As a result, insurance purchased in a state with less-expensive health care costs might not be sufficient in another state. As a result, the purchaser of OOM may have a greater out-of-pocket expense.

So, what would happen if we were to go ahead with this? It is expected that the first people that might take advantage of this are those who are currently uninsured. Those uninsured that are young and healthy would be rapidly accepted by the OOM insurer. Those that are less healthy might not be accepted by an OOM insurer, because of their preexisting disorders. A great many sick Missourians might be unable to buy this less expensive OOM insurance. That means that you and I could end up having to contribute to their care, and the result may be an additional expense to be borne by everyone in the state. But, in reality, this expense is not something new; we are already paying it now.

Interestingly, the Congressional Budget Office looked at this issue about five years ago. They found that if the benefits available from states with the lowest costs were in effect nationally, the price of individual health insurance policies for those able to purchase them might be reduced by an average of about 5 percent. So, it seems that Missouri’s young healthy uninsured would be able to purchase OOM health insurance, and each purchaser might save about 5 percent. But an unintended consequence could be an increase in health care costs for everyone else.

Well, that is one choice. As the health care debate continues, we will have to look at some of the others before deciding which option we want.

About the Author

Stephen Feman