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Costly state

consumer protections required by the licens-

income families out of the market for private

ing state, such as financial solvency require-

health insurance. As many as 75 percent of the

regulations price

ments, could be incorporated into the insur-

uninsured could afford to purchase health

many low-income

insurance54 but find that the available options

ance contract. That would allow the purchaser

families out of

to enforce those requirements in the purchas-

are not worth the high cost of coverage.

er's home state, with the help of his state's

Many individuals and employers who pur-

the market for

insurance regulators.

chase health insurance cannot avoid the

private health

This "competitive federalism"59 approach

unwanted costs imposed by such regulations.

Under each state's licensing laws, every

would improve the quality of health insurance

insurance.

health insurance policy sold in that state

regulation. Giving consumers the freedom to

avoid unwanted regulatory costs would force

must include state-mandated coverage and

states to offer only the regulatory protections

comply with the state's price controls.

Given the wide variation in health insur-

that consumers demand. Otherwise, consumers

ance regulation from state to state55 and the

would take their business--and, importantly,

their premium taxes--to a state that provides

availability of lower-cost policies in some

states,56 many consumers and employers

consumer-friendly regulation. Competition

among the states would drive insurance regula-

should be able to obtain lower-cost health

tion toward an equilibrium--or multiple equi-

insurance in other states, just as they purchase

libria--between too much and too little regula-

many other products from out-of-state.

tion. States would be unlikely to engage in a

However, state licensing laws act as a barrier to

"race to the bottom" by eliminating important

trade, preventing many Americans from

consumer protections: the first people to be

obtaining lower-cost health insurance. The

injured by such unwise regulatory policies

burden of these laws falls hardest on low-

would be the voters in that very state, who

income individuals; 75 percent of the unin-

would then punish the responsible officials.60

sured have family incomes below 200 percent

of the federal poverty level (about $41,000 per

Competitive federalism would be a far

year for a family of four).57

preferable means of making health insurance

affordable to low-income consumers than

federal preemption of state regulation.61

A Health Insurance

First, competitive federalism preserves each

Free-Trade Zone

state's power to determine its health insur-

ance regulations. Second, competitive feder-

alism preserves each individual's freedom to

Congress should sweep away those trade

choose the protections they demand. Third,

barriers and let individuals and employers

and most importantly, competitive federal-

purchase health insurance licensed in states

other than their own. Article I, Section 8 of

ism would maintain constant pressure on

the U.S. Constitution grants Congress the

states not to enact costly regulations, because

consumers could choose policies licensed by

power "To regulate Commerce . . . among the

other states.

several states." That power exists primarily to

If Congress were to preempt state health

prevent each state from erecting barriers to

commerce from other states.58 Congress

insurance regulations, however, that would

effectively federalize the regulation of health

should enact a federal law that prevents

insurance.62 Over time, at the behest of special

states from barring the sale of an insurance

product licensed by another state.

interests, Congress would enact costly regula-

Such a law would enable many low-

tion after costly regulation, just as state legis-

latures have.63 Those regulations would apply

income, uninsured consumers to obtain pri-

vate health insurance, because it would

nationwide, meaning that consumers--partic-

expand their range of choices to include poli-

ularly low-income consumers--would have no

cies free of unwanted regulatory costs. The

escape.

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