As Americans face rising health insurance premiums, allowing interstate competition for individual insurance plans could alleviate price concerns
NEW YORK, NY – The United States Constitution aims to promote interstate commerce, yet Americans find the opposite when they seek individual health insurance plans. Since the McCarran-Ferguson Act of 1945, those seeking to purchase their own health insurance have been constrained to state-licensed and regulated insurers. With a market fragmented into each of the 50 states, there is a large variance in premiums depending on the state an individual lives in, considerably more than among employer-sponsored plans which do not face this barrier. Today, Americans lack the option to shop for individual health insurance across state lines.
In a new report, Manhattan Institute senior fellow Chris Pope looks at the broader regulatory history to explain these disparities in prices. He finds that state regulations, often advanced by interest groups, have evolved to require more benefits from insurers while also restricting their means to control costs. As a result, in the last half-century the number of the average state’s health insurance mandates has shot up from 1 to 37. As these mandates further regulate what insurance must cover, insurance premiums rise and Americans are less likely to purchase, reducing overall coverage.
Turning his eye to the Affordable Care Act, Pope notes that while this legislation may have combined some state markets, it did so by driving up benefit mandates. Worse yet, the ACA created new market distortions, generating further variance in state insurance premiums since being implemented in 2014. The ACA’s “community rating” was intended to require insurers cover enrollees of all backgrounds and medical history but drove up premiums as more costly people to insure joined and the healthy uninsured stayed out. Competition receded when many insurers were temporarily driven out of the market due to uncertainty of who would enroll.
Chris Pope recommends Congress take action to reduce these distortions and facilitate more affordable insurance markets. He notes that allowing the purchase of Short-Term Limited Duration Insurance across state lines can lower premiums and facilitate competition among nationwide medical providers. Undoing the state monopolies of individual insurers (and the provider markets they work with) can foster interstate portability while bringing greater economies of scale to hospitals. Removing the community rating can allow insurers to confidently price their premiums to each individual purchaser’s history while allowing purchasers to use their insurance across state lines. With these reforms, Pope suggests that prices can be standardized across the country and exorbitant hospital procedure costs can be brought in line with national competition and economies of scale.