Let Market Forces Regulate – Health Insurance Standards

In a healthy economy, who should determine health insurance standards, and how?

Reporting this morning on Washington’s scramble to make it legally permissible for Americans to keep individual health insurance policies now being cancelled due to the Affordable Care Act, the Wall Street Journal refers to “health insurance policies that don’t meet the new law’s standards” (“Democrats Defect on Health”). Mr. Obama has proposed a plan that “would let existing holders of individual insurance policies renew for an additional year in 2014 even if those policies don’t meet the Affordable Care Act’s standards” (emphasis added). Administration officials have objected to a Republican plan that “would give insurers one more year to offer policies that were set to end,” but also “allow insurers to sell [this] substandard insurance to new customers” (emphasis added).

Who should determine the standards that different people’s health insurance should meet? Those individuals and the insurance companies they contract with, or government bureaucrats?

F.A. Hayek wrote, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” The legislators and bureaucrats in Washington cannot helpfully design standards for the health insurance of 315,000,000 Americans. They can’t possibly know our different needs and budgets, or the innumerable different combinations of benefits and payment plans that hundreds or thousands of insurers might offer in a free market for health insurance. The political process can’t be flexible and adaptive enough to do a good job of setting and adjusting standards. The legislators and bureaucrats should get out of the way, aside from enforcing contracts and preventing fraud.

Health insurance standards should be regulated by market forces.

Let insurance companies decide what different products to offer at different prices; if some of these are health plans coordinated with health care providers, let the hospitals, clinics, doctors, and nurses decide which plans to participate in; let insurance brokers offer their expertise in matching different policies to customers’ needs and budgets; and let customers choose among these offerings, based on their own standards of what’s good value for themselves and their families. That process would not be perfect, but it is the best available regulator of health insurance standards.

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