Thursday, September 6, 2007

Romney Wants to Reform State Health Insurance Regulation--Just What Does He Mean by That?

Republican presidential candidate Mitt Romney is calling for the cutting of state health insurance regulations to make policies more affordable. He blames the over-regulation of health insurance at the state level as one of the primary reasons health insurance costs so much.

Of course the reason that health insurance costs so much is that health care costs so much, but we’ve discussed that one plenty of times before.

Romney’s proposal comes straight from the conservative Republican playbook on health care. The thinking goes that state regulation has made health insurance expensive—just let the market set its own standards and costs will come down as people buy the policies they need.

To a point, these advocates are on to something. There are too many rules making costs higher from one state to another. Kentucky virtually blew its market up in the mid-1990s with excessive regulation, as one example. The new Massachusetts health insurance law (that Romney signed) refuses to recognize tens of thousands of existing health insurance policies because they don't meet minimum benefit requirements--particularly when the policy has a high deductible.

In fact, you can argue that the minimum health policy standards Massachusetts now has, because of the new law Romney signed, makes it the most regulated health insurance market in the union.

It would also be helpful if we had one regulator in the health insurance space rather than more than 50 and policies that could be sold on a national scale.

But those who advocate a “free market” for health insurance also need to heed recent history.

In the 1980s and early 1990s we had a virtual free market. Health insurers could cover whomever they wanted, drop people when they became sick or give them a whopping rate increase to drive them off. The vaunted “association health plans” many conservatives would like to bring back were in their glory—and largely made money “cherry picking” the best risks.

Most of the state health insurance regulation we live with today came out of the “cherry picking” controversy of the late 1980s and early 1990s.

There is plenty of regulation that is counterproductive and adds unnecessary waste.

But, most of it—the rules that add the biggest costs—were the direct result of some pretty bad free market experiences.

Is Romney looking to trim bureaucratic waste from the health insurance market?

Or, is he calling for turning the calendar back to 1990?

Just where is the health insurance regulatory waste he wants to eliminate? The voters deserve the details on this one.
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