Competition: Good. Regulation: Bad.

Ever wonder why health insurance costs so much?

Sally Pipes of the Pacific Research Institute has some information for you about insurance regulation and the power of free markets: O’s Rx: Break It. Even with the silly title, it’s a must-read.

Here’s a bit of it:

The individual market is where people face the most choices and have the most choice — except in those states with Obama-style regulations. People are spending their own money and so must confront directly the value of more insurance protection versus other uses of their cash. Not surprisingly, they often opt for less generous coverage with less onerous premiums.

To discover this world of choice, just go to Pop in your state, age and gender, and then ponder a myriad of choices to secure protection from catastrophic health expenses, the proper function of insurance.

A 55-year-old man in Allentown, Pa., can choose from 99 plans starting as low as $141 a month for hospital coverage. A zero-deductible HMO plan costs $418 a month. Or he can pick a more flexible PPO, with a higher deductible and pay less monthly out-of-pocket for the premium.

Young people, “the invincibles,” often skip insurance, because they have few assets to protect and little fear of getting sick. The congressional Democrats’ solution is a tax increase by another name: Force employers to keep paying for them on their parents’ expensive plans until age 26.

Yet the market has responded with products targeted at the needs of the young, such as Wellpoint’s Tonik, which offers excellent protection, prescription drugs and preventive care for less than $100 a month for the under-30 set.

So if 50-somethings can get a plan at less than $200 a month and youngsters can sign up for less than $100 a month, where’s the problem? Why, it’s in New York and New Jersey — precisely the states that have adopted Obama-style reform — restricting insurers from charging rates based on age and preventing them from saying no due to poor health.

Change the zip code from Pennsylvania to neighboring New Jersey, and choice plummets even as the cost per plan skyrockets. In New York, our 55-year-old has only 12 plans to choose from.

The reason is simple: When people can buy fire insurance after their houses are burning, only those with a fire in the attic apply for insurance. Soon, only those who expect a blaze can afford the high premiums.

Massachusetts enacted such a system in April 2006. A CEO of a major health network reports exactly this problem: Despite the state mandate that everyone buy and keep insurance, his company is experiencing a drastic increase in people who purchase new coverage, run up big bills that are fully covered and then drop the plan.

People are simply gaming the system. Since they can acquire insurance any time, regardless of health, why pay the premium in times of good health?

Read it all.

We’ve been hoodwinked into believing that Big Business got us into this mess, and that Big Government Meddling and Regulation will fix it. Sadly, Big Government Meddling and Regulation doesn’t fix anything. In fact, it makes it worse, just about every time.

Free economic markets usually do a pretty good job of sorting these things out. And that is because competition on price is always good for consumers. I.e., us.

Conversely, government regulation tends to limit supply of some essential good or service, and drive individuals and businesses away from that line of work, along with the innovation they may bring.

Limiting supply with constant (or increasing demand) always pushes prices up. Always.

So does artificially increasing demand. That’s how the whole mortgage mess started.

It’s just not smart to ignore the laws of economic markets. And this is true even if—especially if—you don’t understand them, or wish they worked differently.

Via No Left Turns.


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