Lowering Health Costs for the Self-Employed

Obama and McCain have competing proposals on changing the individual health insurance market.

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Looks as if I might have spoken too soon about the bipartisan possibilities of allowing health insurance to be purchased across state lines. While Barack Obama does approvingly write in The Audacity of Hope of letting consumers buy health insurance beyond just what's offered in their states, his plan would do this with strings attached.

Obama would allow the national sale of only private insurance plans that go through his "National Health Insurance Exchange." That means that the insurance plans would have to accept federal government controls on what to cover and how much to charge.

In contrast, John McCain says he would allow the nationwide sale of private health insurance without that kind of government oversight, similar to the bill that Rep. John Shadegg, an Arizona Republican, has introduced. While there have been Democratic cosponsors of that bill in the past, the fact that McCain is taking up that proposal now probably means bipartisan action is unlikely for the foreseeable future.

While both plans accept the basic premise that state-based, highly regulated insurance markets are helping to jack up healthcare costs in the individual market that is critical for the self-employed, the difference between them is in just how much regulation we should accept.

It's an important question for entrepreneurs. Many of them are self-employed and can get health insurance only on the individual market, not the group market through which many Americans get coverage via their employer. My hunch is that entrepreneurs would prefer the plan that would allow the most diversity of competing options. After all, entrepreneurs love competition.

But a National Health Insurance Exchange means less competition. As Paul Edattel, healthcare policy analyst for Shadegg, explained to me, "if you undercut private insurers and place price controls on them, government is going to become the biggest insurance company in the country."

One case for Obama's plan, on the other hand, is that we need federal standards on what an ideal health insurance plan would look like in order to deal with lack of consumer knowledge about healthcare.