Mr. Chairman, distinguished Members of the Committee

My name is Michael Tanner and I appreciate the invitation to appear today and the opportunity to share my perspective on the vital issue of reforming health care and one way that Arkansas can help resolve this issue.

For the past 16 years, I have been a senior fellow and director of health & welfare studies for the Cato Institute in Washington, DC. Before that I served as legislative director for the Georgia Public Policy Foundation and as legislative director for health & welfare with the American Legislative Exchange Council. In all, I have spent more than 25 years studying the American health care system and am the author of five books on health care reform, most recently Healthy Competition: What's Holding Back American Health Care and How to Free It.

I understand the frustration that Arkansans feel with the problems facing our health care system. In particular, Arkansans are worried about cost and access. Simply put, health care and health insurance cost too much, and too many people, including roughly 486,000 Arkansans, 17 percent of your state's population, lack health insurance. And the two problems are deeply entwined; cost is the number one reason why people go without health insurance.

The unfortunate reality is that the state's options are limited because both the real villains and solutions to America's health care problems lie in Washington, and specifically with the federal tax code, beyond the reach of state lawmakers. However, there are some important steps that this state can take that will reduce the cost of health care and increase the number of people who are insured, while preserving—and even improving—the quality of the current system

For example, an important contributor to the rising cost of health insurance is state health insurance regulation. Regulation is supposed to protect consumers, yet too much regulation harms consumers by making health insurance too expensive to afford.

This is particularly true for young and healthy individuals; precisely the people who should be encouraged to enter the insurance market before they become older and sicker. Yet current state regulations drive up the cost of health insurance and make it a reasonably logical decision for these young, healthy individuals to remain uninsured.

For example, Arkansas currently has some 41 mandated benefits. This legislature requires residents to purchase coverage they do not need, coverage that they find morally objectionable (e.g., requiring devout Catholics to purchase coverage for contraceptives); and coverage for services that may be more economical to purchase directly. Laws that require Arkansans to purchase coverage for acupuncturists, chiropractors, and podiatrists are not about protecting consumers. They are about protecting chiropractors, dentists, osteopaths, and psychologists by forcing Arkansans to purchase those services.

These mandates in total add significantly to the cost of insurance. While the Arkansas Department of Insurance estimates that these mandates add only about five percent to the cost of insurance premiums, others, including the Congressional Budget Office suggest the added cost could be 15 percent or more. And, given that the average cost of a family insurance plan in Arkansas tops $9,900, even five percent of premiums can be a significant burden for low- and middle-income families.

Clearly, people should be able to purchase coverage for such conditions and providers if they desire it. But just as clearly, those who wish to purchase a less inclusive but also less expensive policy should be able to do so. Repealing such mandates would be one of the most effective steps that Arkansas could take to reduce the cost of health insurance and thereby increase the number of people with insurance.

But short of that, the legislation offered by Rep. Greenberg, HB 1407, would provide important relief to Arkansans struggling to afford health insurance by letting them purchase insurance licensed by another state – much like they purchase cars, food, and furniture from other states, and much like corporations that do business in Arkansas may be chartered in other states.

If we want to protect consumers, we must give them the freedom to choose what their health plan will cover. To do otherwise is to force consumers to choose between expensive health insurance with unwanted whistles and bells, and no health insurance at all. If this legislature were to decree that Arkansans could purchase either a fully loaded Lexus or nor car at all, an awful lot of your constituents would be denied an automobile. The Lexus dealers would be pleased, but Arkansas would be poorer. That is exactly what this legislature is doing to your constituents when it comes to health insurance.

Currently, health insurance consumers are stuck with the regulatory regime of the state in which they reside. Arkansas businesses and individuals are held hostage by the state's insurance regulation. But if free to purchase health insurance regulated by states other than their own, customers could avoid regulations that added unwanted costs. They could in effect, "purchase" another state's set of regulations by purchasing insurance from an insurer chartered in that state. If Arkansans do not wish to purchase all 41 required coverage mandates, they could purchase insurance from another state whose laws are more closely aligned with their own preferences.

Not only would HB 1407 benefit consumers, reduce costs, and increase the number of people with insurance, but the same competitive process that drives producers to improve quality and reduce costs in other products could help produce higher quality regulations. Arkansans would have to compete for the best regulatory environment in the same way it currently competes with other states for the best tax environment.

While some may raise questions of implementation, especially regarding issues such as solvency, guarantee fund issues, and claims enforcement, it is worth noting that many Arkansans already have health insurance from out of state sources. For example, people who have moved into this state may retain insurance they bought in their previous state of residence. And many people in the employer-provided group market can get insurance out of state. Arkansas congressional delegation, for instance, receives insurance through the Federal Employees Health Benefit Program, which is not located in Arkansas. And those Arkansans who live along your state's borders and work in other state's may receive their employer-provided health insurance from the state in which they work. These experiences show that, while the details of implementation are obviously important, it is possible to allow out of state insurance purchase while continuing to protect consumers.

Thank you and I look forward to any questions you may have.