Monday, February 22, 2010

New Proposal for Federal Control of Health Insurers Invites Unintended Consequences

Today the Obama administration made available its plan for a "middle-ground" of healthcare reform attempting to reconcile the vastly different House and Senate-passed bills (more from the Administration can be found here). I am most struck by this latest concept that the federal government could/should regulate the rates charged by health insurance providers. Obviously whoever helped write this never lived in the state of New Jersey (as I have). The Garden State is infamous for ridiculously expensive auto insurance and extremely few choices of insurers despite being such a heavily populated state.

Federal policy makers should learn from this example of the unintended consequences of trying to micro-manage the insurance industry. In New Jersey, where insurers were forbidden from denying any state resident auto insurance regardless of their driving record, insurers quickly learned that it was extremely unprofitable to force their best customers to subsidize the incredible risk generated by adding the worst drivers to their portfolio. It didn't take long for most of the biggest insurers to leave the state, and for more drivers to risk punishment by foregoing coverage instead of paying four digits to insure their '89 Ford Escort.

This led to the creation of a state auto insurance program which required a 10 page application and premiums that would make you faint...and we're just talking auto insurance. Do I need to spell it out for Washington??

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