Republicans: Effective Politics Void of Good Policy (Part 2)

Image result for fighting republican elephant

It’s time to turn our attention to the Republicans. Republicans are not afraid to stick to their guns and make bold moves. Republicans outflanked Democrats on their judicial nomination. They refused to hold so much as a Senate hearing for a year. Their boldness did not subside, but was ramped up to a new level when they decided to make Donald Trump their nominee. Once again, Democrats were left decimated on the battlefield.

What they have in boldness they severely lack in policy. Consider these four areas:

1. Immigration
2. Health Care
3. Syria
4. Trade

We’ve seen the problems that plagued Trump’s immigration policy in previous posts. Republicans also lack a coherent plan for Syria. Republicans reject the Trans Pacific Partnership (TPP), but have not offered a better trade plan. They want to repeal the Affordable Care Act (ACA), but they have not proposed a replacement. We’ve seen in previous posts the negative consequences of repealing the ACA.

Let’s take a look at two policy proposals offered by Republicans to solve the health care problem.

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Insurance across State Lines

Republicans hope to expand costumer choice and reduce the price of insurance by removing the red tape associated with state insurance. This goal will be achieved by allowing insurance companies to place its headquarters in a state with less regulation. Suppose California required that insurance companies include contraceptive options and chiropractic care. These requirements would make the price of insurance in California higher. If California customers were allowed to buy insurance from Alabama they might get a better deal. California companies will be forced to compete with the Alabama based insurance companies for customers.

The problem with this proposal is that it fails to solve the problem of competition. The customer in California can’t go to Alabama to see the doctor. She will have to find a physician in California. This means the Alabama based company must establish contracts with doctors and hospitals in California. It would be quite difficult for an Alabama insurance company to establish new networks in California.

Empirical studies demonstrate the difficulty of establishing such contracts. Sabrina Corlette is a Research Professor at Georgetown University’s Center on Health Insurance Reforms. Her work shows that the problems with interstate purchase has to do with establishing networks among other things.

Corlette co-authored a study of multiple states that allows out-of-state insurance sales. Her findings are illuminating. Not one out-of-state insurer took advantage of the offer.

More telling is the fact that there are no federal barriers to interstate insurance commerce. It is actually the states who want to regulate the insurance market. This means Republicans are proposing a solution to a non-existent problem! If that is not enough, the ACA actually includes provisions to encourage interstate insurance commerce! A provision allowing purchase of insurance across state lines can be found in section 1333 of the ACA. Here is the relevant portion of section 1333 of the ACA:

(b) AUTHORITY FOR NATIONWIDE PLANS.—
(1) IN GENERAL.—Except as provided in paragraph (2), if an issuer (including a group of health insurance issuers affiliated either by common ownership and control or by the common use of a nationally licensed service mark) of a qualified health plan in the individual or small group market meets the requirements of this subsection (in this subsection a ‘‘nationwide qualified health plan’’)—
(A) the issuer of the plan may offer the nationwide qualified health plan in the individual or small group market in more than 1 State; and
(B) with respect to State laws mandating benefit coverage by a health plan, only the State laws of the State in which such plan is written or issued shall apply to the nationwide qualified health plan.

Insurers would also need to create a large risk pool in other states in order to make their plans competitive. It is exceedingly difficult for insurance companies to create these pools in other states.

Another problem lurks is the darkness. The sickest patients would be vulnerable and their insurance prices will skyrocket. Here is how an article in the LA Times describes the problem:

But the prospect is that Blue Shield of California would no longer be issuing policies to Californians; the state’s residents would have the choice of Blue Shield of Texas or Louisiana, or nothing. As industry expert Richard Mayhew of Balloon-juice.com observed early this year, if a law was passed granting a national license to any insurer in any state, “the state with the weakest and most easily bought regulatory structure would have 98% of the viable insurance companies headquartered there within nine months.”

That could create chaos, and higher premiums in the target state’s insurance market — the low-regulation policies would cherry-pick healthier customers, leaving sicker patients at the mercy of in-state insurers who would charge them sky-high prices. As for in-state regulators, they wouldn’t have jurisdiction over out-of-state insurers; if you’re a Californian signed up with Joe’s Insurance of Idaho, who do you call to get redress for a grievance?

Image result for health care premium

I could continue to list the problems with buying across state lines, but I think my point is well established. Buying across state lines is basically a worthless policy idea.

We will address the second proposal in the next post.

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