To Cut Your Health Insurance Costs, Move

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If you live in New York State and don't have health insurance but earn too much money to qualify for subsidized state insurance, you can always reduce your costs sharply by moving to Connecticut. There, you'll pay $7,750 a year for a family policy that would cost you $12,250 in New York State.

If you are in the same boat in New Jersey, you can decamp next door to Pennsylvania and reduce your insurance bite from nearly $10,500 a year for family coverage to $6,500. Or, if you prefer a bare-bones high deductible policy, you can pay a mere $800 a year in Pennsylvania for your family coverage.

All of this talk of health reform in Washington has created the illusion that we have a single health care system in America with prices that are roughly similar once adjusted for local costs of living. But in fact we have 50 different health care systems. Our states, through their insurance commissioners and legislatures, exercise enormous influence over the shape of health insurance by mandating to residents and businesses what kind of coverage they must have, and to insurance companies what kind of illnesses and therapies they must cover.

The result is sharply different rates across the country. In a study, the trade group for the nation's insurers, America's Health Insurance Plans, estimated that the average premium for family coverage in the individual market nationally was $5,800. But the study found wide disparities in costs, ranging from average premiums north of $12,000 in New York and Massachusetts to premiums costing on average only $3,000 to $5,000 in more than a dozen states. Some states have even allowed insurers to introduce low-cost, high-deductible policies that can cost under $1,000 a year.

It's fair to say that the costs imposed by some states based on how they regulate health insurance are now a bigger burden on individuals and small and mid-sized firms than state and local taxes. New Jersey's per capita state and local tax burden, for instance, is $1,322 a year higher than Pennsylvania's, according to the Tax Foundation. But an individual buying health insurance for himself in Jersey must pay $1,377 more, on average, than in Pennsylvania for a policy. Only very large firms, which generally self-insure and are free from having to follow the worst of mandates, can escape the health insurance luxury tax that some states impose through their regulatory regimes.

Numerous studies document how a state's policies can price many of its own residents out of the market. A new report from the Manhattan Institute, for instance, estimates that New York's health insurance mandates raise the cost of insurance some 42 percent, effectively pricing out about a third of those who are uninsured and could otherwise afford coverage. The biggest driver of costs in New York is the so-called guaranteed issue mandate which requires that an insurer issue a policy to anyone who seeks one, even someone who has previously gone uninsured but then chooses to buy a policy once he became sick. Another big ticket mandate is community rating, which requires insurance companies to charge policyholders the same premium, regardless of their age, gender, or health status.

Other mandates requiring that insurers cover everything from chiropractic care to family therapy sessions to "hair prosthesis" each typically add on average 0.5 percent to the cost of a policy, though some mandates, like those requiring insurers to pay for in vitro fertilization procedures, boost premium prices up to 5 percent. It's precisely because some states pile mandate upon mandate (New York has 51), that the total cost of insurance can vary widely from state to state.

There's no evidence that states garner any benefit from such regulation and mandates. States with numerous mandates don't have healthier populations, for instance. Indeed, many state mandates are enacted for political reasons that have little to do with health care outcomes. Several years ago New York's then-Governor Pataki signed into law the state's hefty in vitro fertilization mandate as a payoff to conservative religious groups whose members favor big families and lobbied heavily for the law. It's a rather classic example of how, when you vest such power in lawmakers, some will eventually abuse it.

States have often tried to fix the mess they create with these mandates by expanding their state-subsidized coverage as more people become uninsured. In New Jersey, for instance, the state subsidizes coverage for children in families earning up to 350 percent of the poverty level. But, that's still not enough to address the state's uninsured problem because Jersey's individual health insurance policies are so expensive. So Gov. Corzine has proposed a universal health insurance mandate in the state, which would cost an additional $1.2 billion annually, and which he knows the state can't afford.

In lieu of a new state universal coverage mandate, Corzine will settle for a national health reform bill which forces insurers in other states to do what Jersey does. That's why Corzine supports Democratic plans in Washington for national health insurance reform. They would level the playing field between expensive states like his and everyone else by shaping America's health care system so that it looks the same, that is, just like New York or New Jersey or Massachusetts. That's one way to keep residents and businesses from fleeing the high costs of health insurance that your state imposes.


Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute

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