Selling Health Insurance Across State Lines: A Race to the Bottom?

Allowing individuals to purchase health insurance from out of state would certainly make for a more robust, competitive health insurance market. Individuals would no longer be stuck with dwindling in-state options for health plans, which means that many residents in states with abnormally high insurance premiums would be able to buy insurance from states where prices are less expensive.

Now, in many cases, those premium prices are less expensive because they’re saddled with fewer state-level insurance mandates. According to insurance industry data, state mandates can add anywhere from 30-50 percent to the price of an insurance premium, so states with more mandates tend to have more expensive premiums. Allowing the purchase of health insurance across state lines would allow individuals to circumvent those mandates and purchase insurance from states that have fewer requirements. That’s why many Democrats say deregulating health insurance would lead to a “race to the bottom.” At a House hearing on the matter this week, this was once again the sticking point in the debate. From The Hill:

Basic consumer protections that exist in almost every state would be eroded if insurance companies could sell policies across state lines, Democrats said Wednesday.

Rep. Henry Waxman (D-Calif.) said some coverage mandates, such as a requirement to cover adopted children and disabled adult children, are on the books in more than 40 states. A Republican bill to ease the interstate sale of insurance would take away many of those protections, he said.

Democrats have often characterized interstate insurance as a “race to the bottom.” One state could largely deregulate its insurance market. Insurers could then base most of their policies there and sell them in other states without adhering to those states’ laws, critics of the idea say.

The Cato Institute’s Michael Cannon dismissed this complaint rather effectively in Cato’s Handbook for Policymakers:

Opponents will claim that regulatory federalism will lead to a ‘‘race to the bottom,’’ with some states so eager to attract premium tax revenue that they will eliminate all regulatory protections or skimp on enforcement. In reality, both market and political forces would prevent a race to the bottom. As producers of regulatory protections, states are unlikely to attract or retain customers—insurers, employers, or individual purchasers—by offering an inferior product. Purchasers will avoid states whose regulations prove inadequate, and ultimately, so will insurers. Moreover, the first people to be harmed by inadequate regulatory protections will likely be residents of that state, who will demand that their legislators remedy the problem. The resulting level of regulation would not be zero regulation. Rather than a race to the bottom, regulatory federalism would spur a race to equilibrium—or multiple equilibria—between too much and too little regulation. That balance would be struck by consumers’ revealing their preferences.

The point I would add to this is that we already know that many of the state-level mandates are unnecessary. In 2010, state mandate levels varied from as few as 13 in Idaho to as many as 69 in Rhode Island. But it’s not as if there’s a major national outcry about the dangers faced by residents of Idaho buying comparatively less regulated insurance. There’s no good reason to force residents of other states to purchase insurance that is more comprehensive, and therefore more expensive, than they want or need.

So sure: Maybe deregulation would lead to a sort of "race to the bottom," with high-mandate states dropping legal requirements in order to better compete with low-mandate states like Idaho. But with essentially no one worried about health insurance offerings in existing low-mandate states, and with those states generally offering far cheaper prices, you have to ask: Is the bottom actually so bad?

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Jeff P||

    Christ, he's like an SCTV character.

  • ||

    He is the evil mole man from planet X.

  • Independent Insurance Agents||

    Thanks for sharing! I look forward to viewing others like this.

  • mr simple||

    I was thinking Dick Tracy bad guy, like Rat Face or something.

  • WTF||

    What kind of pyschopaths actually vote for this vile creature?

  • Libertard||

    I love everytime someone posts a picture of him accompanying a post. It's like slandering him without doing anything wrong, just by showing everyone how evil and insane he looks.

  • ||

  • CrackertyAssCracker||

    I remember when I thought that maybe "health care reform" would have to entail the 100% constitutional breaking down of trade barriers between states in the insurance market. Even if there was a little more pork-like spending at the top too. How naive I was just 3 years ago.

  • Warty||

    Waxman looks very pleased with himself.

  • ||

    That's actually cute in comparison. In fact, you malign the poor creatures.

    His hideousness is more than mere skin-deep.

  • ||

    So that's what they do with all those foreskins...

  • ola||

    Someone should punch his momma in the mouth.

  • Montani Semper Liberi||

    I didn't realize until now that Waxman was Mr. Yunioshi's white half brother.

  • Warty||

    I love how 4/5 comments are about how mindfuckingly ugly the man is. How does anyone take him seriously?

  • ||

    And he represents Hollywood as well. How is it that the land of the beautiful people has the most mind numbingly ugly man for its congressman?

  • NoVAHockey||

    that's why he keeps being re-elected. he's 3000 miles away for long periods of time.

  • Tman||

    It's like a car wreck isn't it? You can't look away. He's like a cartoon character for fucks sake.

  • Otto||

    I love how 4/5 comments are about how mindfuckingly ugly the man is.

    I'm surprised he hasn't written a bill mandating plastic surgery coverage.

  • Otto||

    “race to the bottom.”

    Once again, all they can see are potential negatives. The idea that increased competition might bring about some companies voluntarily offering the coverages they want is completely absent.

  • Almanian||

    companies voluntarily offering the coverages they want

    MAYBE IN LIBERTOPIA! That's just crazy talk, Otto!

  • Anomalous||

    I bet Barney Frank loves a race to the bottom.

  • ||

    I watched a documentary recently called Bigger, Faster, Better (I think that's the title), about steroids and other performance enhancers. They interviewed Waxman, one of the main warriors against any of that stuff. The guy is dumb as dip, and knows NOTHING about the topic he's writing laws regarding.

  • Almanian||

    Bigger, Faster, Better

    That's what SHE said.

  • Warty||

    Speaking of, I read a good article by Bill Starr that talks about Ziegler and Dianabol. Fascinating stuff in its own way.

    Part 1
    Part 2, although this one doesn't talk about dbol so much.

  • ||

    “race to the bottom.”

    That's all I see with my food, clothing and shelter sellers. They're all competing with one another to see who can offer the shittiest products at the highest prices.

    Why, just yesterday, I paid $300 for a dirty rag to wear as pants.

  • Almanian||

    $300? LUXURY! I paid $700 for a dog's ear that served as my raincoat yesterday.

    I wouldn't have such an issue if it weren't from a Chihuahua...DAMNED CAPITALISTS!!

  • ||

    disabled adult children

    Huh? Is this a PC term I'm not familiar with? If the person is disabled and over 18, they're a disabled adult, full stop.

    Unless we're talking "adult babies" with the diapers and the creepiness. Is that your kink, Waxman? I bet it is, you sick fuck. Either way, the mandates are a dumb idea.

  • ||

    I think it's: adults who are disabled and theit parents are still caring for them.

    The grinding plates that make up Waxman's thorax have trouble forming human words.

  • ||

    Yeah, I mean, I kind of gathered that, but it's meeting him more than half way. Waxman is in need of disabled man rat mandate (translation from idiot to English: disabled humans who in actuality have more in common with naked molerats).

  • ||

    You gathered nothing, woman! Nothing!

    I reject the notion that Waxman is a mole rat. He (?) is clearly not a mammal.

  • ola||

    There are actually a lot of disabled adult children in Idaho.

  • Gibby||

    And in congress.

  • MJ||

    "Is this a PC term I'm not familiar with? If the person is disabled and over 18, they're a disabled adult, full stop."

    You are probably more familiar with the more common term for this condition, i.e. "rank and file Democrat".

  • Almanian||

    Interstate Health Insurance --> Robber Barons --> Indentured Servitude --> SOMALIA!!!!1one!!

  • IceTrey||

    You know since they have no government interference Somalia has some of the best and cheapest cell phone service.

  • ||

    Democrats have often characterized interstate insurance as a “race to the bottom.”

    Democrats characterize all market competition as a race to the bottom. Because people are, you know, completely incapable of making informed decisions or recognizing their own self-interest.

  • Michael||

    Okay, every time I ask for an answer to why this protection exists this bizarre "race to the bottom" argument is about the only thing that's presented. How exactly would easing a federal restriction have any effect whatsoever on state level mandates? The people living in a state with such a mandate would still have to comply with that mandate regardless of where they purchase their insurance and at what price, no? What am I missing here?

  • Peter Suderman||

    Michael,

    The mandates aren't applied to individuals. They're applied to the insurance carriers who operate in a given state. Let folks buy out of state, and you let them buy policies with fewer mandates.

  • Michael||

    Gotcha. Thanks, Peter.

  • Stretchy||

    Doesn't the prohibition against interstate sales also effectively trap consumers in low-mandate states into getting crappy insurance?

  • proegg antichicken||

    Not unless the protections in the regulatory mandates are important to you. In this deregulation you, the consumer, get to choose what's important to you in a health insurance plan. Pretty neat, huh?

  • Craig||

    The people who live in the low-mandate state get to vote for the people who come up with the regulations. If you live in a high-mandate state, and all of the insurance companies move to South Dakota (or whatever) because of their lack of regulations, then you have no say in the things your insurance company is mandated to cover.

  • adam||

    Um, except in your decision of whether to purchase the company's product....which is a shitload better than a single vote for a single legislator.

  • IceTrey||

    There isn't any federal prohibition against interstate sales of insurance. It's the one area in life were they actually have a legitimate use for the Commerce Clause but refuse to enforce it. It all has to do with the McCarran- Ferguson Act. If someone in a low mandate state wants better that minimum mandated insurance they just pay for it. Insurance companies are happy to add on as much coverage as you want.

  • Eric F||

    Please stop posting beefcake photos of Henry Waxman, it's getting me too hot to concentrate on anything.

  • ||

    Great concept. Let's extend it:

    Don't like the speed limits in your state? Register your car in another state with higher speed limits, and then drive as fast as you want on your own state's roads.

    Don't like the gun control laws in your state? Buy a gun from a state with looser laws, then strap that baby up in a shoulder holster and strut around town in your home state. Nyah nyah! Can't touch this!

    Don't like the age of consent in your state? Declare yourself a citizen of another state where the age of consent is lower, then bang that little piece of jailbait to your heart's content.

  • ||

    Roads? Drink! Also, absurd troll is absurd.

  • ||

    "absurd" = "argument won -- tadaah!!!"

  • Gibby||

    Christ are you stupid. Your analogies are stupid too. But then the two go hand-in-hand.

  • ||

    "stupid" = "argument won -- tadaah!!!"

  • proegg antichicken||

    I hope for your sake that you are just a partisan hack and not that aggressively stupid to think that your comparisons have any merit.

    HOPE.

  • ||

    "stupid" = "argument won -- tadaah!!!"

  • Asha||

    No it doesn't.
    1) Insurance is a good, not a safeguard aganist other people's behavior like the speed limit laws and the age of consent laws.
    2) All gun control laws are unconstitutional. Your gun scenrio was particular inept since you would actually be safer if people knew you were packing heat.

  • proegg antichicken||

    You're comparing criminal activities that can endanger other people's lives to the freedom to choose what sort of health insurance you want to buy. My freedom to purchase a product as basic as health insurance is just like your freedom to troll this blog. No one else is less free as a result.

  • waffles||

    But if California were to ban anonymous internet use and you posted here from San Fransisco surely you would have no problem paying the price, right?

  • ||

    Great concept. Let's extend it:

    Why extend it? Can't you argue against it as it is?

  • ||

    Oh, you think you can call me out now for a merits-based discussion? I think you burned that bridge with me a long time ago, "sage."

    I can't stop you from vandalizing my posts with graffiti-flaming, which sh!ts the thread for everybody else, but don't expect anything nice to happen. You and I do NOT have a speaking relationship. Go play with your fellow poop-smearers like Epi and sevo.

  • ||

    Is this a spoof?

  • free2booze||

    Explain to me again, how my choice of health insurance effects the liberties of the other members of my community?

  • ||

    If you pick up and move to a state with insurance regulations more to your liking, then your "choice of health insurance" doesn't affect them.

    If the federal government says the state government can't apply its own laws to policy sales in its own state, then the people of the state have been deprived of self-government in that sector.

    If you only care about maximizing the scope of one-on-one transactions (without regard to bargaining power), and don't give a rat's ass about democratic self-government at the state level, no problem.

  • IceTrey||

    So why doesn't the same apply to any other kind of insurance?

  • Tncm||

    If the federal government says the state government can't apply its own laws to policy sales in its own state, then the people of the state have been deprived of self-government in that sector.

    You're question-begging. Why is self-government something to be strived for, especially when it involves the democratic control of private property?

    If you only care about maximizing the scope of one-on-one transactions

    And multi-party transactions.

    (without regard to bargaining power)

    Employer and employee, consumer and firm, have equal power in the market.

    and don't give a rat's ass about democratic self-government at the state level, no problem.

    No problem indeed.

  • ||

    I've always been baffled by what is so scary about deregulated health-care. If I want to have health care insurance that is better than the state mandate, what's stopping me?

    Oh wait, then the state wouldn't be protecting poor, stupid me! Oh the horror!

  • x,y||

    Let's not forget that by doing this we would at least concede the "interstate" part of interstate commerce.

    /not an endorsement of regulating nonactivity as "commerce"

  • bob hertz||

    The only mandates which have a major effect on insurance premiums are guaranteed issue and community rating.

    The relatively few states which do have guaranteed issue and community rating also have very high insurance premiums. Even a young healthy person must pay over $700 a month for a basic policy.

    A majority of states allow medical underwriting and age-rated premiums.
    In these states, a young healthy person can buy a basic policy for $150 a month or even less. The companies in these states have the right to turn down a person with health problems (and they turn down a lot of them)

    Therefore, allowing insurance buying across state lines will reduce the number of young people who are uninsured.

    This reform must be coupled with subsidies for those who are 'left behind', however.

    Bob Hertz
    The Health Care Crusade

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Progressive Puritans: From e-cigs to sex classifieds, the once transgressive left wants to criminalize fun.
  • Port Authoritarians: Chris Christie’s Bridgegate scandal
  • The Menace of Secret Government: Obama’s proposed intelligence reforms don’t safeguard civil liberties

SUBSCRIBE

advertisement