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The 50 State Problem

In today’s column, Paul Krugman effectively lays the blame for all that is wrong with the country’s healthcare system at the feet of the health insurance companies. This, of course, is the party line of the American left. What Krugman, with characteristic disingenuity, fails to mention are such matters as insurance in this country being regulated by the fifty states, not the federal government. So insurance companies have to jump through fifty sets of regulatory hoops, not just one. That doesn’t make for efficiency. And states, at the behest of special interests, love to pile on mandates that most people would be happy to forgo in exchange for lower premiums. (New York, for instance, requires health insurance policies to cover chiropractic treatments and in vitro fertilization procedures among much else, greatly driving up the cost of health insurance in that state.)

And he calls for “a simplified, uniform insurance form,” which he notes that even conservative Bill Kristol called for sixteen years ago. He implicitly blames the insurance companies for not achieving it. But he doesn’t bother to note that getting such a thing through fifty state insurance commissions (not to mention the Antitrust Division of the Justice Department, which might regard such an effort as a combination in restraint of trade) is nearly impossible. We have long had national insurance markets and Congress has the power to take over regulation of them under the interstate commerce clause. It has not done so for purely political reasons. But let’s blame the insurance companies anyway.

Krugman also thinks that the “public option” would force insurance companies to clean up their acts thanks to competition. He writes that, “The ‘public option,’ if it materializes, will be just that — an option Americans can choose. And the reason for providing this option was clearly laid out in Mr. Obama’s letter: It will give Americans ‘a better range of choices, make the health care market more competitive, and keep the insurance companies honest.'”

Competition certainly forces noses to grindstones — it’s exactly why capitalism works and socialism doesn’t. Of course, there has never been a case in the history of the world — that I know of at least — in which a government competed with private companies on a level playing field. And the playing field would most certainly not be level here.

The public option would not have to answer to fifty state insurance commissions, a huge competitive advantage. And, being a federal entity, it would be exempt from federal, state, and local taxes. So competition between this “public option” and private insurance companies would be like a foot race in which every runner but one had to carry a couple of bowling balls around the track as he ran.

And, of course, Krugman fails to note that the federal government already runs a vast health insurance company called Medicare with truly stunning inefficiency, waste, and fraud. Even the Council of Economic Advisors — a White House group — writes in a report that Medicare could cut costs by thirty percent without adversely impacting healthcare.

As Virginia Postrel suggests, why not use Medicare as a laboratory for reforming the health insurance system? Once they see what works in Medicare, the private health insurance companies would be only too glad to emulate its success, assuming they are allowed to by their fifty separate sets of regulators, of course.



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