You Forgot Administrative Costs 

Here is an interesting article from the Wall Street Journal advocating the idea that people ought to be able to buy insurance from any state (H/T to Daily Pundit). The idea is that the insurance company would have to obey the laws only of the state in which it resides, and not the state laws for all states where they sell insurance.

Republicans haven't been getting much credit on the health policy front, despite their misguided 2003 drug entitlement masquerading as Medicare "reform." That could change soon. Last week the House Energy and Commerce Committee approved a bill that could dramatically reduce the ranks of the uninsured and spur general economic growth--all without costing a dime to the Treasury.
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New York requires every insurance policy sold there to cover podiatry. Acupuncture coverage is mandated in 11 states, massage therapy in four, osteopathy in 24, and chiropractors in 47. There are an estimated 1,800 or so such insurance "mandates" across the country, and the costs add up. "It is always the providers asking for the mandate; it is never the consumer," says health policy guru John Goodman, who has testified before legislatures considering such rules.

What's more, states like New Jersey and New York add two more ultra-expensive requirements: "Guaranteed issue" allows people to wait till they are sick and then buy insurance; "community rating" prevents insurers from charging different prices to people of different ages and health status. These may sound like compassionate ideas, until you realize they make insurance so expensive that millions of people are exposed to financial ruin because they aren't allowed to buy basic policies focused on catastrophic costs.

It's an interesting concept, and worth the read. The article goes on to talk about how this concept worked very well for both consumers and the banks in that industry. One thing totally ignored by this article which should have been covered is the enormous administrative burden placed on insurance companies by the states where they sell insurance. Right now, companies have to maintain huge databases filled with rules and laws for every state where they sell insurance. I shouldn't complain, as my job is to write software to handle all this and it keeps me well employed. But at the same time I'm uniquely qualified to tell you how much it costs to keep up with them.

For instance, different states limit the types of questions you're allowed to ask potential policy holders about their health history. Other states mandate that you get certain information from them. So when you call an 800 number and talk to someone, the first thing they have to do is pull up your file in the software to determine what they can and can't ask you. The very next phone call that person takes could have a whole different set of rules in force of course, adding to the pain. And that's just so you can do an interview. Once that's been done, there are a whole different set of state by state rules for underwriting, renewal, notifications, etc. It's very costly, costing the industry millions of dollars a year.

The administrative burden a potential law like this could reduce is enormous. Of course then I'd have to find a new client.