Business Insider

Peter Crabb: We need interstate markets for health insurance

Peter Crabb: The Economy
Peter Crabb: The Economy

This flu season, many people are thankful they got a shot to protect themselves. The health industry is using different means to protect itself.

Current health care laws protect both health insurance companies and doctors from competition.

Since the Patient Protection and Affordable Care Act went into effect, more Americans have insurance coverage, but the price of health services continues to rise faster than the overall inflation rate. The U.S. Department of Labor reports that consumer expenditures for medical care rose at twice the overall inflation rate in 2015.

Economic theory and evidence tells us that this unfavorable outcome is due to the lack of competition in the health care service market. Greater competition will bring about lower prices and potentially higher quality.

A competitive market is one in which there are so many buyers and so many sellers that each has a negligible impact on the market price. In such markets, suppliers have to keep prices low and offer quality service to survive and prosper.

The current legal restrictions on how Idahoans buy health insurance, and the barriers to market entry for many health care providers, reduce the consumer benefits of competition.

You don’t have to watch television for long to see many ads for how to save on your auto insurance. Life insurance is also relatively easy to find and buy. The reason for all this consumer choice and price competition is that many firms compete in these markets across many different states.

Not so with health insurance. Insurance companies must set up separate firms with different policy offerings in each of our 50 United States. Interstate competition has improved efficiency and raised consumer value for many different types of products. Unfortunately, consumers of health insurance have been denied these gains.

An interstate market for medical providers will also improve competition and lower prices. Licensure requirements and the vested interests of current doctors keep qualified providers out of our markets.

The Interstate Medical Licensure Compact is a movement to fix this problem. Representatives from Idaho and 11 other states will meet later this month to further discuss how to ease licensing requirements across states and increase access through the use of telemedicine technologies.

You should protect yourself from the flu, but we should not protect our health care market from competition.

Peter Crabb is professor of finance and economics at Northwest Nazarene University in Nampa. This column appears in the March 16-April 19, 2016, edition of the Idaho Statesman’s Business Insider magazine as part of a special section on the business of health.