By Evan Falchuk

One of the less talked about reasons why health insurance is so expensive in America is our system of insurance regulation.  It’s a system that dates back to the 19th century, and hasn’t changed very much since.

Here’s how it works.  There are 50 insurance commissioners.  They set the rules for insurance in their states, and they have a major impact.

What it means is that if you want to sell an insurance product in the United States, you have to pick a state in which to start.  You would have to comply with that state’s rules about financial stability and management.  Then, you would have to comply with the state’s mandates as to what needs to be in the product, and, depending on the state, you may have to change your price to fit what the state says you have to charge.  Its a process that can take many months or years.

Now, if you wanted to sell your product across the country, you have to go through this process 50 different times. It’s why when you see a brochure for an insurance product you can read on the back of the brochure all kinds of notes about how the product differs in different states.  It’s a process that adds significant administrative cost to any insurer who wants to sell a new product.  And it’s an important contributor to why the US insurance market is much less dynamic and competitive than perhaps any other market in America.

Imagine if our market for cell phones worked this way.  We’d have 50 different cell phone networks, and 50 wireless device commissioners who would decide who can sell phones, and at what price.  They would mandate what features a phone had to have and couldn’t have in their state.  Apple could design an iPhone, but why bother – they would have to make 50 different versions of it.  They could only sell it in one state at a time, and they would have to change features and price every time they went into a new market.

So when you hear people talking about health “insurance” reform, think that maybe it shouldn’t be about trying to curtail specific bad things that some insurers do.  Instead, think that maybe we should be talking about having a regulatory system that meets the needs of a modern economy.  We should be thinking of opening up our insurance markets to actual competition – not one new, giant, lumbering government insurer, but rather dozens of new, dynamic entrants into the insurance market.