Radley Balko and Michael Cannon propose changes in health insurance regulation.

Currently, many states require health insurers to charge the same premiums for any member of a group health plan, regardless of risk. This means that the costs of the donuts-and-pizza couch potato’s unhealthy decisions are imposed on the gym rat who keeps a careful diet and watches his cholesterol.

Removing these barriers would encourage health insurance companies to begin experimenting with carrot and stick approaches to healthy lifestyles…

[We should] enable the residents of any state to purchase health insurance in any other state, under the laws and regulations of the state where the insurer is incorporated. This would create a nationwide market for health insurance, as President Bush has suggested. Making the U.S. a “health insurance free trade zone” would allow consumers to avoid unhealthy regulation and encourage states with anachronistic health insurance regulations to deregulate, or face the risk of health insurers reincorporating elsewhere.

While they are at it, they should create a “free trade zone” of medical licensure. Ultimately, the way to do that is to eliminate medical licensing and replace it with a reputation system.

It sometimes strikes me that the locus of power between states vs. the Federal Government is sometimes the reverse of what the Constitution intended, with Washington regulating things that have almost nothing to do with interstate commerce and states impeding trade with fifty-one regulatory fiefdoms, as is the case in health insurance.

For Discussion. What is the economic rationale for regulating health insurance or medical licensure at the state level?