The Verizon Wireless cure for health care reform

Improving health insurance requires more, not less, competition.

Opinion

Imagine that your only option for cellphone service comes from one company special to every state, and that it costs $300 per month. On top of that, though it promises unlimited minutes and data, it drops calls all the time, provides lousy customer service, offers only a slow network, and forces you to buy a needlessly fancy phone that doesn’t work very well.

That is the future of health insurance under the health reform bills in front of Congress – unfair, unfriendly, and unhealthy.

My recent experience with Verizon Wireless illuminated this comparison.

After my daughter exceeded our monthly free minutes, I learned that Verizon offers the ability to change your plan. You can increase the number of free minutes at any time. There is also the option of making the change in plan retroactive to the beginning of your current billing cycle. By taking this very consumer-friendly option, I spent $17 on a new monthly plan but saved nearly $100 on overage charges.

Why is health insurance not the same?

Compare the consumer-friendliness of the cellphone industry with health insurance companies. Many of my friends have a horror story about how an insurer refused to certify a legitimate claim, dragged their feet on payment, overbilled them, or, if they even got to talk to a human being, was just plain awful at customer service. Health insurance companies certainly seem to fit a stereotype.

Are health insurance company employees just meaner and more greedy than those who provide cellphone service, or, for that matter, those who provide home and auto insurance? Certainly not.

The difference is that the cellphone, auto, and home insurance industries are highly competitive while the health insurance industry is not.

Verizon knows it has to provide customers with the services and prices they want, or it will lose them to AT&T, Sprint, or T-Mobile.

Because the government has distorted the tax treatment of employer-provided health insurance, many of us get our insurance through our employers. This reduces competition, which causes problems.

If the service is bad, we can complain, but we can’t easily change carriers. This hampers quality and keeps prices high. As new estimates from the government report that health spending climbed to eat up 17.3 percent of gross domestic product last year, we need to make sure that what we’re spending on healthcare isn’t artificially high due to a lack of competition.

Competition is further reduced by regulations that prevent customers from buying health insurance across state lines. Even if you’re self-insured, in many states you may be limited to only one or two choices for coverage.

Most states force insurers to write health policies that cover a whole variety of medical conditions and needs, even if customers do not want them. This prevents insurers from offering cheaper plans with less coverage, forcing everyone into very expensive so-called Cadillac plans.

Imagine having no choice but to buy the most expensive phone and data plan for your phone, even if you know you won’t use it. Consumers wouldn’t stand for it. They’d demand better. So why would Americans let that slide with something infinitely more important?

Healthcare insurance companies have little incentive to provide the price and service combinations customers want.

If such incentives existed, we might be able to fine-tune coverage with a half dozen mouse clicks, just as we can with our cellphone plan.

Whether the phone is used only for high-priority emergencies, for constant teenage chitchat, or downloading films, cellphone providers offer plans that match a whole variety of preferences. Regulations and limits on competition prevent health insurers from doing the same.

The cure for this lousy service and unfair practice is more competition.

Sadly, neither version of the healthcare plans in front of Congress allow space for healthy competition. The various health insurance “exchanges” and byzantine combinations of subsidies and penalties that the proposed legislation contains will only further restrict competition. Restrictions force insurance companies to offer only those plans that meet government approval.

If a bill passes, the result would be the equivalent of forcing every American to buy a cellphone, even if they didn’t want one. Those who have phones would see their plan costs soar, spending more for features they don’t want and inferior customer service. Washington should seriously consider the success of the cellphone industry’s model. Making health insurers more consumer-friendly requires competition.

By changing tax law to break the link between employment and health insurance and by abolishing laws that prevent purchasing health insurance across state lines, Washington could turn a doomed system around.

More competition would give consumers more options and enable them to switch providers more easily, which would create much stronger incentives for good customer service than just complaining to a monopoly.

The sooner Congress realizes that the prescription is not more government regulations but a dose of real competition, the sooner we can restore some health to the health insurance industry.

Steven Horwitz is a Mercatus Center affiliated senior scholar and Charles A. Dana professor of economics at St. Lawrence University in Canton, N.Y.

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