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And Now For A Really Bad Idea On Health Care Reform...

With the Iowa caucuses less than a month away, it's important to scrutinize the health care reform plans of the leading Democratic presidential candidates.  But it's also important to keep these differences in perspective.  Hillary Clinton and John Edwards would require everybody to obtain insurance, Barack Obama wouldn't.  But they're all talking about the same goal: Covering every single American though some sort of government action.  And their plans still have a great deal in common.  That's a good thing.

You almost never hear that kind of talk on the other side of the aisle.  With a few important exceptions, what you hear are ideas that would not help very many people and might -- quite possibly -- hurt some.  A case in point is the Republican crusade against state regulation of insurance. 

Many states have strict requirements for how insurance companies can price their policies and what benefits they must offer.  The requirements generally apply only to insurance purchased by individuals and small busineses.  (Plans for large employers are exempt because of a law called ERISA, whose history and meaning I will spare you -- because nobody whose job doesn't involve administering health benefits should have to slog through that explanation.) 

These regulations, say the conservatives, are the reason insurance has gotten so expensive.  The solution, they propose, is to let people buy policies across state lines, so that somebody in a high-regulation state (like New Jersey) can buy a cheaper policy sold from a low-regulation state (like Idaho).  On the op-ed page of today's Wall Street Journal, Merrill Matthews of the Coalition for Affordable Insurance makes this case.

(And who is the Coalition for Affordable Health Insurance? Glad you asked.)

The problem, alas, is that these regulations exist to protect people.  Without them, insurers could just offer skimpy benefits that, naturally, would attract only very healthy people (who don't need good beneifts, or at least think they don't need good benefits), making it much harder for people with actual health problems to buy insurance. And, needless to say, once cross-state sales became legal, every insurer in the world would flock to the low-regulation states -- creating a race to the bottom -- in the same way that all the credit card companies flocked to Delaware and South Dakota because of the favorable environments there.

Ezra Klein* has a nice interpretation of Merrill's argument, that really gets to the heart of the matter:

The problem with health insurance is that it covers health problems. If, instead of having regulators force them to cover health problems, insurers could construct "coverage" plans that didn't cover health problems, but were still advertised as if they did, the health care system's problems would be solved! 

I've written about this subject a few times before -- in a TNR column about two years ago (not available at the moment due to technical glitches at our site) and, more extensively, in my book.  And, as I mentioned in both places, state regulations are important not only because they establish minimum benefits and help make policies more available to the sick.  They are also important because they help avoid fraud. 

It's already very tough for state regulators to stop illegitimate insurers before they victimize people.  If individuals can start buying coverage across state lines, then the job will be that much tougher.  (If there were adequate federal enforcement of solvency requirements and such, that'd be fine.  But, suffice to say, the conservatives who want to create the open-state market are not the ones who like to expend large resources on creating and maintaining new federal agencies to police these things.)

Of course, even with state regulations on insurance, coverage is still pretty tough for individuals and small busineses to get.  The downside to regulations on benefits, etc., is that they really do raise premiums for everybody -- which discourages small businesses from offering insurance and discourages individuals from buying it.  In other words, these sorts of regulations are a very imperfect solution to a very real problem. But that is why you really do need some sort of universal coverage plan that puts everybody into one risk pool, giving individuals and small businesses access to the same sorts of affordable rates that employees of large companies get. 

*This, by the way, gives me a convenient excuse to alert readers about Ezra's new location -- at the American Prospect website. Visit early and often.

-- Jonathan Cohn