Tecnologías para el desarrollo de la aplicación

If one wanted to improve on the status quo, there are two obvious targets: the tax treatment of health insurance, and the elimination of state-specific monopolies on insurance regulation created by the McCarran-Ferguson Act and ERISA. Each of these targets is addressed in turn.

A. TAX SUBSIDY

As noted previously, individuals who obtain health insurance through their place of employment receive a sizeable tax subsidy. In its current form, the tax subsidy is the source of considerable horizontal and vertical inequity and allocative inefficiency.⁴⁹

47. David A. Hyman, The Massachusetts Health Plan: The Good, the Bad, and the Ugly, 55 KANSAS L.REV. 1103, 1113, n. 49 (2007); William M. Sage, David A. Hyman &

Warren Greenberg, Why Competition Law Matters to Health Care, 22 HEALTH AFF. 31, 35 (Mar./Apr. 2003) (“When costs are high, people who cannot afford something find substitutes or do without. The higher the cost of health insurance, the more people are uninsured. The higher the cost of pharmaceuticals, the more people skip doses or do not fill their prescriptions.”). See also Posting of David Cutler to Blog for Our Future, available at http://www.ourfuture.org/blog-entry/adviser-describes-obama-health-plan (June 1, 2007, 4:07 EST).

Let's face it, the major reason that 45 million Americans don't have health care and many others are going without needed medical care is not that they don't want it, it's that they can't afford it. . . No matter how much we tell Americans they should, or even have to, buy health insurance, the fact is that people will not get coverage unless it is affordable.

Id.

48. Hearings, supra note 47 (testimony of David A. Hyman) (“We should not place the poor and less fortunate in the position of choosing between ‘nothing but the best and nothing’ when it comes to health care coverage – but excessive regulation will do exactly that.”).

49. Clark C. Havighurst & Barak Richman, Distributive Injustice(s) in American Health Care, 69 LAW.&CONTEMP.PROBS. 7, 42 (2007); Hyman & Hall, supra note 9.

There is no shortage of proposals on the best way to fix the problem.⁵⁰ We should pick one and give it a try. My personal preference is to repeal I.R.C. §106, and see if we can make health care less expensive by making it more expensive.⁵¹ That said, “leveling up” is likely to prove more politically feasible than “leveling down,” and if that is the grease for fixing the some or all of the existing tax inequities, so be it – allocative inefficiencies notwithstanding. Fixing the tax subsidy may also help increase portability of coverage, by uncoupling it from a specific employer.

B. REGULATORY FEDERALISM

The framework for regulating health insurance is a mess. Identical coverage (from the perspective of covered employees) is regulated quite differently, depending on whether the plan is self-funded or insured. There are also state-specific regulatory monopolies, with little effective constraint other than employers and individual citizens exiting from the market entirely (by relocating) or virtually (by self-funding their coverage or no longer offering insurance if they are employers, or becoming uninsured if they are individuals).⁵² The unsavory combination of regulatory monopoly,

50. Reform options include:

[R]epealing the exclusion outright; continuing to exclude it from income, but capping its value and allowing it to erode over time;

converting the exclusion to a tax credit; leaving the existing exclusion alone, but adding tax credits as a subsidy for the poor; making the exclusion more universal. . . excluding all out-of-pocket spending on health care; and, so on.

David A. Hyman, Getting the Haves to Come Out Behind: Fixing The Distributive Injustices of American Health Care, 69 LAW CONTEMP.PROBS. 265, 274 (2007).

51. I.R.C. § 106 (1986) (“Gross income does not include contributions by the employer to accident or health plans for compensation (through insurance or otherwise) to his employees for personal injuries or sickness.”).

52. See Hyman, supra note 30, at 230, n. 23:

[A]ny significant regulatory mismatch provides an incentive to employee benefit plans to become self-funded, in order to avoid the costs associated with state-level regulation. Thus, the efforts of the states to regulate in this area have effectively backfired, since they have become increasingly aggressive at regulating a vanishing market-and their efforts increase the rate at which the market vanishes.

Id. But see Christina H. Park, Prevalence of Employer Self-Insured Health Benefits:

National and State Variation, 57 MED CARE RES. REV. 340, 343 (2000) (finding no association between number of state mandates and percentage of employers who are self-funded).

off-budget costs, and the politics of mandating is also likely to result in mandate creep.

How should we address this unhealthy dynamic? A number of approaches have been floated, including direct federal regulation/chartering, deregulation, association health plans, exclusive state regulation, and cross-border sales of health insurance.⁵³ I suggest an alternative strategy that blends certain of these elements, while exploiting the benefits of jurisdictional competition.⁵⁴ The goal is to identify the

“Delaware” of health insurance regulation.

There are different ways of creating jurisdictional competition in health insurance regulation.⁵⁵ The most comprehensive approach requires amendment of both McCarran-Ferguson and ERISA. Under this approach, insurance companies would pick the state they wished each of their insurance products to be regulated by (“home jurisdiction”). ERISA preemption would be constrained, and ERISA plans would be required to designate a home jurisdiction as well.⁵⁶ Individual states could only prohibit the sale of insurance policies to their state’s residents if the insurer had not designated a home jurisdiction. Premium taxes could only be collected by the home jurisdiction, but they would have to be shared 50:50 with the jurisdiction where the insured resides.

The result of this approach is the creation of a national market for health insurance coverage. States should compete for the premium taxes associated with the sale of insurance subject to their regulation – and the inclusion of ERISA plans ensures that a sizeable amount of new money is at stake. States would have to take a hard look at the aggregate cost of the mandates and premium taxes they impose, knowing that the wrong decision would result in the loss of a sizeable amount of revenue. States would also be constrained from adopting too lax a regulatory framework by the knowledge that their own residents will be subject to the same regime. The sharing of premium taxes allows states to maintain their traditional

53. See generally Amy Monahan, Federalism, Federal Regulation, or Free Market?

An Examination of Mandated Health Benefit Reform, 2007 U.ILL.L.REV. 1361 (2007).

54. See New State Ice Co. v. Lieberman, 285 U.S. 262, 311 (1932) (“It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”).

55. For a different model, see HEALTH CARE CHOICE ACT, H.R. 4460, 110th Cong.

(2007).

56. Although this will make ERISA plans subject to state-level regulation, only one state will get to regulate them. Thus, the problem of inconsistent state regulatory regimes, which ERISA was designed to address, is not a problem.

consumer protection efforts to ensure that health insurers do not misbehave.

Finally, the elimination of the ERISA regulatory vacuum will eliminate the pressure for Congress to directly regulate in this area.

If states do not want to wait for federal legislation, they can implement a similar regulatory result by entering into regional compacts. Each state can agree to allow the sale of any health insurance product that was acceptable to the other states, and share the associated premium taxes and enforcement responsibility. Paradoxically, the states whose residents would benefit the most from jurisdictional competition are the least likely to participate in such regional compacts. Yet, all it takes is two states to agree to begin the process of jurisdictional competition – and the results will tell us a lot about how much individuals and employers actually value state-level regulation of health insurance.

To be sure, broader markets for health insurance, whether structured on a national or regional basis, will make life more difficult for states that wish to regulate inefficiently or hide the costs associated with the use of regulation to redistribute resources. It is not obvious why more transparency on the consequences of health insurance regulation should count as a problem. Stated more bluntly, these effects are a “feature, not a bug.” If states want to regulate inefficiently, they are certainly entitled to do so – but they should bear the costs of their inefficiency. Similarly, states that want to engage in redistribution have no valid objection if jurisdictional competition forces them to squarely confront the costs of their largesse – particularly if, as if often the case, the redistribution results from rent-seeking.

V. CONCLUSION

One could come up with a system for regulating health insurance that is more perverse than the one we have, but it would take both effort and creativity. As Bill Simon, former Treasury Secretary once observed, our tax system should look like it was “designed on purpose based on a clear and consistent set of principles. . . .”⁵⁷ The same should apply to our regulation of health insurance and health insurers. Tax reform and regulatory federalism offer a strategy for rationalizing the system, by harnessing the self interest of all involved, and forcing legislators to face the costs of their decisions.

57. WILLIAM E.SIMON, BLUEPRINTS FOR BASIC TAX REFORM (1977), available at http://www.ustreas.gov/offices/tax-policy/library/blueprints/forward.pdf.

Regardless of the manner in which health insurance is regulated, private insurers will never behave like public insurers. If legislators actually want public insurance, they should enact it. If they can’t do that, but they still think the mandated services are important, they should pay the market clearing price to have them delivered.⁵⁸ Of course, a world in which legislators/regulators have to “pay the piper” is a world in which legislators/regulators are suddenly much more cautious about imposing such burdens.⁵⁹

Playing legislative/regulatory whack-a-mole with individual coverage terms and individual insurers may be making providers, lobbyists and lawyers rich, but it isn’t doing any favors for the consumers that are its intended beneficiaries. It is time to change the incentives for everyone involved.

Finally, although this article focuses on the regulation of health insurance, we should not ignore the similar pathologies that prevail in the regulation of health care delivery. That, however, is the subject for another day, another article, and another journal.

58. States could either pay insurers to include the desired services in their insurance plans, or they can pay providers for delivering them. Regardless of which approach is employed, state legislators would suddenly have to internalize the costs of the regulations they impose.

59. Hyman, supra note 30, at 249 (“Because the government provides coverage for a minority of those who are insured, the majority of the costs of ‘reforms’ considered by legislators are off-budget. Predictably enough, the result is more and costlier consumer protection than would be the case if the costs were on-budget.”).