Freedom in the 50 States

Miscellaneous regulations include, in declining order of importance, (a) certificate-of-need requirements for new hospital construction, (b) auto insurance rate filing requirements, (c) homeowner’s insurance rate filing requirements, (d) general unfair-pricing and sales-below-cost laws, (e) price-gouging laws, (f) rate classification prohibitions for some classes of insurance, (g) membership in the Interstate Insurance Product Regulation Compact, (h) direct-to-consumer auto sales, (i) minimum markup and sales-below-cost laws for gasoline, (j) moving company entry regulations, and (k) mandatory product labeling laws.

Certificate-of-need regulations land their first-place slot in this category based on the over $3 billion in extra costs they impose on hospitals, customers, and potential market entrants.¹ Next come state personal auto insurance rate filing requirements. These regimes range from Massachusetts’s old “fixed and established” system (scrapped in 2008), in which all car insurance premiums were dictated by law, to Wyoming’s no rate filing requirement. A one-standard-deviation change on this −1 to 4 scale, about 1.2 points, would be worth $2 billion nationwide. The main problem with strict rate regulation regimes is that they encourage insurers to stop insuring some drivers altogether, forcing those drivers to find coverage in a state-guaranteed, “residual” market.²

Homeowner’s insurance rate filing regulations range from “prior approval” to “no file.” A one-standard-deviation shift on this variable would be worth $1.3 billion nationwide. The Interstate Insurance Product Regulation Compact makes it easier to sell the same life insurance policy or annuity across state lines. Prohibitions on the use of certain criteria for insurance rating purposes—such as age, gender, territory, and credit rating—redistribute wealth from low-risk to high-risk individuals and drive some consumers out of the market altogether.

Price-gouging laws, which have gained in popularity recently, try to repeal the laws of supply and demand. They impose price controls on necessary products after disasters, making them even scarcer by disincentivizing supply and incentivizing demand.³ According to W. David Montgomery, Robert Baron, and Mary Weisskopf, a price-gouging law on gasoline could be expected to reduce economic welfare by at least $1.9 billion in the wake of a major disaster on the scale of Hurricanes Rita and Katrina.⁴

Mandatory product-labeling laws include (a) genetically modified organism (GMO) labeling requirements on food (now federalized) and (b) California’s unique law mandating disclosure of potential carcinogens, which has a much bigger impact than GMO labeling (about $17 million per year in settlement costs alone).⁵ We exclude this mandatory labeling law variable from our chain-linked index because of the 2016 federal preemption law on GMO labeling requirements.