Peter Crabb Column: More health care choices may be coming to your neighborhood, courtesy of Washington, D.C.
Idaho’s Legislature is debating the establishment of a state-run health insurance exchange. But with a federally run health insurance exchange, we all may end up with more choices and better service.
Gov. Butch Otter supports the creation of a state-run health insurance exchange as directed under the federal Patient Protection and Affordable Care Act, otherwise known as Obamacare. The costs of operating such an exchange at the state level are high and the potential benefits, if any, uncertain.
Perhaps more important, a federally run exchange could be the best thing to happen to health care consumers in quite awhile. A federally run health insurance exchange is more likely to lead a to national market for the sale of health insurance. A national market will lead to more competition and better service.
Economic theory predicts and historical evidence shows that prices decline as markets open to more competition. Just as countries benefit when they open their borders to international trade, trade between the states is good for everyone. Selling health insurance across state lines can improve choices and lower prices.
Insurance companies need large markets to achieve economies of scale. Many businesses seek the cost advantages that come from spreading their fixed costs over a higher level of output. For health insurance providers, the fixed costs of setting up policies and establishing relationships with doctors and hospitals can be very high. Allowing insurance companies to operate across state lines is one way to spread out these costs.
Many consumers complain that their health insurance premiums are too high and their policies too hard to understand. But similar complaints are rarely heard about car and life insurance, which can be purchased across state lines from large firms operating in a very competitive market.
Two years ago, researchers from the University of Minnesota published a study showing that an interstate market for health insurance would increase coverage and lower premiums. Their data show that Idaho could expect a 17 percent increase in health insurance coverage if a national market were established. With more buyers of health insurance, the risks to the insurance company fall and premiums decline.
Recent experiments in interstate sales of health insurance have brought little or no change. Georgia’s market is open to outside insurance carriers, and Wyoming put forth a proposal for an interstate exchange, but both states have seen little action from insurance companies. Without a national market, there is little incentive for insurance companies or health care providers to make the capital and labor investments needed to support interstate transactions.
The situation is analogous to interstate banking. In 1975, Maine opened its markets to branch banking and saw little change in services or prices. It was not until all states followed in the early 1990s that the benefits of interstate banking became evident. It will take time and many state-law changes, but a more open market will lead to better consumer choices and lower prices.
There’s no need to bother with a state-run exchange. Washington can bring lower health insurance premiums and better coverage to us.
