The Limits of Portable Healthcare

Ever since we can remember, people who want to cut the cost of health insurance have argued that insurance companies which have had a health care policy approved in one state ought to be able to sell it in any other state.  The argument is that all states are required to honor each other's drivers' licenses, so why not health insurance policies or concealed carry permits?  Allowing the sale of health insurance across state lines would, at the very least, increase competition for the increasing number of localities which have only one or two vendors.

This sounds plausible on other grounds too.  One reason Obamacare policies are so expensive is that the Obama administration required that all health insurance policies cover all sorts of things that many people don't need.  The most famous example is their attempt to require the celibate nuns of the Little Sisters of the Poor to buy policies which covered contraception and abortion, but there are others.

What our Founders called "the several states" fall victim to the same problem.  Practitioners of all stripes lobby to have their services be included in the list of covered services - chiropracty, acupuncture, and all sorts of things most people neither need nor want.  In some states these efforts have been more successful than others.

Getting on the list of required services has the further advantage that, once the service is covered by health insurance, the state board of health gets to inspect, license, and otherwise regulate whomever delivers the service.  This makes it harder for new people to offer the service, which lets incumbents raise prices.

Because it is brought about by political lobbying rather than any sort of scientific proof, required insurance coverage offers no guarantees that a service is actually effective.  Some years ago, a woman who was dying of breast cancer read that a bone marrow transplant might help her.  Her insurance company turned her down because there was no evidence that this painful, expensive process would help.  Her protest went viral, and many state legislatures changed their laws to cover bone marrow transplants for breast cancer patients.

When proof accumulated that not only did marrow transplants not help, the stress of undergoing the procedure actually shortened the patient's lives, no lawmakers were willing to go on record to take away something women had demanded.  Although only a quack who really wanted to buy a new Cadillac would now recommend a marrow transplant for breast cancer, the laws remain on the books in the states where they were passed, and policyholders in those states still have the costs of an obsolete procedure built into their policies.

The advantages of allowing interstate health insurance sales have been clear for a long time.  Insurance companies are just as subject to bureaucratic growth as government, and competition or collapse are the only mechanisms known to man for trimming bureaucracy.  Many smallish states have only one health insurance company because the cost of adjusting a health plan to cover that state's many rules and regulations is simply too high.

The suffering citizens of these states may rail at their monopoly carrier, but there's nothing they can do about it because they have no choice to buy elsewhere.  There would be price competition if carriers from other states were free to sell in their state.

What's more, we will have to allow for health insurance portability nationwide somehow if we ever want to decouple health insurance from employment so that a worker can take an insurance policy along when moving to another job.  When you move from California to Ohio to take another job, your Geico car insurance goes with you, but not, currently, your health insurance.  If you work for a multi-state company, they'll arrange your health insurance, but if you are self-employed you have a major research project ahead of you, as well as the risk that you won't be able to find what you need.  That's silly.

Yet, as someone once said, "For every complex problem, that is a solution which is simple, plausible, and wrong."  We're not sure that this initiative is totally wrong, but there are definitely problems.

The Lesson of Banking

There was once a day when banks were chartered and regulated by individual states.  Banks generally couldn't grow any bigger than their home state permitted, of course, because it was too expensive to meet the different regulations imposed by other states.  In some cases, states prohibited out-of-state bank from holding charters in their state.

When credit cards were getting off the ground, most card companies were based in North Dakota because that state permitted higher interest rates than any other state.  Americans had always had the right to open a bank account with any bank in any state, not just their home state, and since a credit card was viewed as a funny type of bank account by regulators, banks could issue cards to Americans anywhere.  North Dakota-based banks had a major competitive advantage all across the fruited plain: they could offer high-interest credit cards to riskier customers than banks elsewhere whose interest rates were limited by their own states.

Competing state banks sued, claiming it was unfair for them to have to compete against credit cards issued from North Dakota.  They lost, federally-chartered banking was born, and banks were free to grow across state lines.

We now have banks that are not only too big to fail, they're too big to operate efficiently, and too complex for any regulator or executives to understand anyway.  The people who run our banks are paid king's ransoms and are supposedly the best in the world, yet this doesn't keep them from running their banks into the ground (along with our economy) with disturbing regularity.  This history and our bad experiences do not bode well for monster interstate health insurance companies.

Simpler Plans, But...

Suppose that North Dakota has fewer lobbyists than New York, so health insurance plans are permitted to ignore a lot of conditions that must be covered by New York insurance.  A North Dakota insurance company will naturally be significantly cheaper than a New York carrier if only because it covers a whole lot fewer things.

No doubt a great many New York City residents would buy a North Dakota policy if they could, since it's so much cheaper.  But the New Yorker with his North Dakota policy is not going to fly to North Dakota every time he gets sick; he'll visit a New York doctor, of course.

The New York doctor, like anyone else, wants to get paid.  But in order to do so, he has to fill out the forms required by the North Dakota carrier, which will most likely be different from the forms his office system is used to.

Every medical practitioner we've talked to agrees that filling out forms is just about always more complicated than the medical treatment, and pushing papers costs 20-30% of the total cost of providing medical care.  Medicare requires that billing for medical diagnosis and treatment conform to a code named ICD-10-CM; this standard is applied nationwide, so the standard for medical billing encoding is pretty much the same everywhere.

Alas, it isn't exactly simple.  Google asserts that ICD-10-CM has 155,000 different billing codes, which represents a magnificent improvement over ICD-9 with its mere 18,000 codes.  The government web site says:

There are nearly 19 times as many procedure codes in ICD-10-PCS than in ICD-9-CM volume 3. There are nearly 5 times as many diagnosis codes in ICD-10-CM than in ICD-9-CM.

The doctor's office and the North Dakota company are probably still digesting the change from version 9 to 10; they may not use the same version of the codes, and they certainly will have different forms.  If a clerk makes a mistake, payment may be delayed or not happen at all.  The doctor is not going to appreciate having yet another set of forms to fight, particularly for only one patient.

What's more, the North Dakota company won't have a contract with every New York doctor; in fact, they may not have a contract with any doctor in a state two thousand miles away.  This doesn't mean they won't cover care there, but they'll regard the service as "out of plan" which makes the patient's share of the payment go up.

To be fair, the New York doctor pays higher rent and higher wages for everyone in his office, but this makes the problem worse.  His costs are far higher than the North Dakota company is used to, and they won't want to pay the difference.  How long will it take for the New York medical community to decide they don't want to accept North Dakota insurance even if it technically can be sold?  Then how long before the unhappy person "covered" by a perfectly legal but largely useless North Dakota insurance decides to sue for false advertising?

There are solutions, of course: the North Dakota company could raise its rates so as to cover the average cost of patients anywhere it sells its policies.  That's great for residents of New York, who can still buy cheaper trimmed-down insurance even though they're still paying New York prices for the services they use.  It's not so great for people who actually live in North Dakota and only use cheaper North Dakota doctors, but still have to pay insurance rates that are priced on the assumption that some of the buyers will use doctors in New York.

You could solve this problem by charging people different rates depending on where they live, as car insurance companies do, but then you aren't selling the same policy across state lines anymore, are you?

There are obvious ways to solve all these problems and the ones they create, but in reality they only make the overall problem worse.  Do we really want the Federal government to pass laws requiring that all doctors everywhere accept any insurance issued by any state?  It's true that banks in any state can cash checks drawn on banks in any other state, but it took a long time and much effort to agree on all the peculiarities of bank checks so that any bank can process any check.

Despite all the billions spent on electronic medical record systems, we aren't nearly at that point with respect to medical treatment, and medicine is inherently a thousand times more complex than cashing checks.  Do we really want the federal government, which did such a wonderful job with the Obamacare web site, to specify everything about medical billing?

Maybe instead we should consider if we might be better off getting the Federal government out of regulating medical practices and insurance entirely, and simply leave that to the individual states as we did for most of our history.  Then, angry patients could bombard their own governors and legislatures to fix the problem - or move next door to a state that did a better job, as people do every day for a whole host of reasons - and let the President and Congress worry about all the other things that aren't working.