“Unfortunately for the theory, it’s based on some false assumptions.
For one thing, it assumes that there is currently a national marketplace for things like auto and life insurance. There isn’t. In the United States “national” insurance companies like Geico and Progressive are really networks of state-based companies. When you buy insurance, you’re buying it from a company with an office in your state, licensed to do business in your state. If you want a better deal from another state, you have to physically migrate to that state. But the good news is when you do, you can usually transfer your coverage fairly easily. Say you buy auto coverage in Virginia, and then move to Colorado. Geico of Virginia hands you off to Geico of Colorado with a few mouse-clicks. Happily, state legislatures have worked to make these sorts of handoffs seamless, by harmonizing their insurance laws.
Yes, some states have over-regulated their health insurance markets. Badly. So why not allow customers to vote with their keyboards instead of their feet? To understand why that’s not a sound idea, in our system, consider a thought experiment. Imagine if we let people pick their “governing state” with respect to taxes instead of insurance. I could, for example, opt to pay South Dakota’s dirt-cheap tax rates while still living, and using the roads and police, in high-tax New York. Why would New York stand for that? Why should it? Under our Constitution, state sovereignty isn’t a suggestion, it’s the law.
Notice how nobody is clamoring for interstate purchase of auto and life insurance. That’s because those markets work pretty well, and that’s because the coverage is individually owned. Most health insurance, alas, is not. Most Americans don’t actually own their health insurance. They participate in a prepaid group health benefit plan, usually provided through an employer or the federal government. By definition, such a plan isn’t portable because of who owns it (i.e., not you).
Half the U.S. population relies on employer-sponsored group health benefits, not because of state mandates, but because of federal tax subsidies for employer-sponsored group health benefits. End those subsidies, and more Americans will own their health insurance, and it’s a sure bet health insurance will begin to look more like auto and life.”
“Instead of trying to create an unnecessary “national marketplace” in insurance, which only makes Uncle Sam even more of a national insurance commissioner than he already is, states should simply streamline their regulations and promote portability via an interstate agreement approved by Congress.
In fact, such a compact already exists. Its purpose is to facilitate interstate comity in most forms of insurance. It just needs to be updated to cover health insurance. States haven’t bothered to update it because Uncle Sam is sitting on their chest.
So if we want to revive the true insurance market — a competitive, state-based market — we have to get Uncle Sam off the states’ chest and out of their business. And we have to change the tax laws to stop favoring group health benefits over true insurance.
Individual ownership is the holy grail. When most Americans own their insurance, it will be portable and affordable. But there is only one road to the holy grail, and it does not end in Washington. It ends in your state capital.”