An overriding myth has taken over the discussion of health care in this country: that the rising insurance premiums, cost of care and gaps in access to insurance we are now experiencing must be due to Obamacare.
President Trump’s announcement Thursday of an executive order seeking to dismantle some provisions of the 2010 Affordable Care Act further preserves this myth by trying to cement the notion that our health care challenges are due to the ACA.
History shows otherwise, however, as our per-person spending on health care has been climbing for at least a half century. The most notable increases were due to the implementation of Medicare and Medicaid in 1965.
Trump claimed Thursday that “the freedom to purchase health insurance across state lines will create a truly competitive national marketplace that will bring costs way down and provide far better care.”
He failed to mention that the law already allows insurers to do so if they form “health care compacts” (Section 1333 of the ACA). In fact, it was Obamacare that created the opportunity to sell insurance across state lines, where it had been forbidden under the McCarran-Ferguson Act of 1945.
So why aren’t many insurers selling across state lines? One important economic reason is that each state has developed its own regulations so that selling health insurance between states has been too costly for insurers.
Ironically, it is due to a lack of a uniform system of rules that makes negotiating contracts and creating legal health insurance policies more costly to provide. Our affinity for letting states choose their own regulations has created a complicated patchwork of laws to follow.
Currently, to sell a policy to individuals in a state, the policy must abide by that state’s regulations and be approved by its insurance commissioner. This will not necessarily become much less burdensome under Trump’s executive order, despite bypassing some federal regulations.
We must also consider how health insurers generate profits. When they are able to promise hospitals a sufficiently large pool of patients, they can negotiate a discount. This keeps premiums down. If an insurer only has a handful of patients in a given state, it must pay a higher fee to any hospital this patient might visit. Contracts with physicians and other providers face the same issue.
Therefore, “allowing” insurance companies to obtain customers across state lines cannot succeed unless insurers are willing to offer that plan. Without significant changes to the many state-by-state differences in insurance requirements, it still may not be an attractive business proposition.
While last week’s announcement may appeal to the simplified notion that “competition must bring down prices,” we must be sure of the precise impediments to the proper functioning of the particular market at hand.
This discussion doesn’t even touch on health care subsidies, short-term policies, health reimbursement accounts, nor many of the other components involved in Trump’s executive order.
As we’ve heard before from this president: “Nobody knew health care could be so complicated.”
Karen Travis is an associate professor and chair of Economics at Pacific Lutheran University, where she teaches health care economics. Reach her by email at firstname.lastname@example.org.