Ban on Interstate Insurance Undermines Dems' Effort to Lower Health Care Costs

Congressional Democrats trying to drive down the cost of health insurance face one big snag: the states, not Washington, control most of the costs.

"Most Americans don't realize that the only place they can buy health insurance is in the state where they live," said Sen. Jim DeMint, R-S.C., "If you get a better policy and a lower price in another state, you can't buy it."

And the price for health insurance policies can vary by thousands of dollars in part because any plan sold in a particular state must include a list of mandated benefits and there are huge variations in the number and kinds of benefits required.

"That's correct," said Kansas Insurance Commissioner Sandy Praeger, former president of National Association of Insurance Commissioners. "Some states have as few as, oh, maybe less than 10. Some states have as many as 50 or more."

Rep. John Shadegg, R-Ariz., said most states have enacted what are called benefit mandates, which means policies purchased in these states must cover all kinds of services, even if they're not desired.

Services such as massage therapy or marriage counseling or hair replacement or dozens of other benefits, each of which makes an insurance policy more expensive.

"But each time you mandate an additional benefit, the cost of the policy goes up," Shadegg said.

The cost varies so much between states in part because of regional costs, in part because of mandated benefits. For instance, for individual plans, an individual would pay a little more than $1,500 in Utah, more than twice that much in Maine and three times that much in New York.

And an uninsured family in New York, for instance, could save almost $5,000 by simply moving to Connecticut. So the Republican bill would simply allow companies to offer health insurance plans across state borders without a prescribed list of benefits and let people choose what suits them.

"We need people who live in South Carolina to be able to buy a plan in North Carolina or Georgia, Arizona or Washington State if they can find a policy that better fits their needs," DeMint said. "And this idea doesn't change anything about states' rights or states' ability to regulate their own policies. What it does is allows me to buy a policy that's regulated in another state."

Shadegg said, "You can afford a Yugo or maybe some other compact car, but you can go in to buy a car and you discover the state legislature has written a law that says we're sorry, only caddies and Mercedes can be sold in our state because we want only quality cars to be sold here."

Economist Doug Holtz Eakin said if the U.S. was started again in 2009, there wouldn't be state-by-state insurance markets.

"We'd have a large national market," he said. We'd have effective competition in it and that to me, that strikes me as a very sensible way to go."

But the U.S. is not starting over and any move that infringes on the states' regulation of their insurance markets would be controversial and is currently opposed by House Democratic leaders.

But it could offer consumers more choices -- without going to a public or government run option. And many argue it would lower prices on the low end of the market, the very people who do not now have insurance.