Selling Health Insurance Across State Lines

health-insurance(A version of this Health Alert was published by The Hill.)

Here we go again: Republican politicians are rolling out an easily digested sound bite: Allowing health insurers to sell coverage across state lines would solve the problem of high premiums. In the current presidential race, Donald Trump, Sen. Marco Rubio (R-Fla.), Sen. Ted Cruz (R-Texas), Sen. Rand Paul (R-Ky.), Rick Santorum, Gov. Bobby Jindal (R-La.), and the recently departed Gov. Scott Walker (R-Wis.) all proposed it. It has been a feature of Congressional Republican proposals since at least 2010.

The only problem is that such a reform has no effect. Back in 2010, Georgia sacrificed its sovereignty to regulate health insurance, but premiums didn’t change. The reason is that if a health plan wants to offer coverage in a state, it already can easily do so. Health insurers enter and exit markets all the time. Aetna and Cigna are domiciled in Connecticut, but that does not prevent them from offering plans in other states. Insurance commissioners do not discriminate between in-state and out-of-state insurers when they issue insurance licenses.

Advocates of “selling health insurance across state lines” will insist that I am missing the point. Absent Obamacare, states had dramatically different health insurance mandates. As a result, New Yorkers paid more for insurance than did Utahans. Therefore, the argument goes, if Congress passed a law allowing New Yorkers to buy policies licensed in Utah, they could buy less expensive coverage. Well, maybe they could, if they wanted to fly to Salt Lake City every time they wanted to see a doctor or needed an operation. By far the largest determinant of insurance premiums isn’t mandates, it’s the provider network tied to a health plan.

Whether or not Congress has the authority to pre-empt states’ powers to regulate insurance within their borders is a question I will leave for constitutional scholars to debate. Whatever the answer, it does not change the fact that “selling health insurance across state lines” is a red herring. To illustrate, consider auto insurance. If you move from one state to another, you call your insurer, tell the customer service rep your new ZIP code, and that is that. You may get a small adjustment in your premium, but it will be no big deal. And yet, there was no Act of Congress that mandated selling auto insurance across state lines. Auto insurance is regulated entirely by states.

States have managed to harmonize their laws such that they can handle residents moving in and out of state with the same auto insurance. Indeed, states even launched an interstate compact in 2006 to further harmonize their insurance laws.

The main difference between auto insurance and health insurance is that individuals own auto insurance, but employers own health insurance. Obviously, states would not attract residents if they impeded a national market for auto insurance. Similarly, if we owned our own health insurance, states would quickly harmonize their laws to facilitate a national market.

Which brings us to a legitimate recommendation for Congress: Stop the tax code’s discrimination against individually owned health insurance.

Unfortunately, most GOP healthcare proposals would continue this injustice. And injustice it is. The bias in the tax code forces us to get the health benefits that our employers choose, rather than letting us use our own pre-tax dollars to buy individual, portable, guaranteed renewable, health policies of our own choosing.

Making the tax code more equitable is not an easy lift. Any politician who advocates this reform  — as Senator McCain (R-Ariz.) did in his 2008 presidential campaign — jumps into a buzz saw wielded by powerful special interests such as the U.S. Chamber of Commerce, the ERISA Industry Committee, and America’s Health Insurance Plans. Consequently, the Republican politicians retreat by repeating the meaningless “selling insurance across state lines” mantra.

Until they embrace the principle that every American should be free to choose his own health plan, and not have to rely on one chosen by his employer, the Republicans will continue to stumble on the path of real health reform.

Comments (14)

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  1. Barry Carol says:

    My own preference is to eliminate the employer health insurance tax preference in a revenue neutral way which means protecting the middle and lower middle class by reducing marginal tax rates and perhaps the FICA tax rate, raising the standard deduction and increasing the EITC to ensure that the federal government collects no more net revenue than it did before the change. We pay for every other type of insurance we buy with after tax dollars. Health insurance should be no different.

    We also would need to develop a mechanism to make sure every employee understood the full cost of his or her health insurance premium and that employees were effectively paying the entire cost in the form of lower wages than they would have otherwise been paid. We should also provide them with information about how much comparable coverage to what they have now would cost if they had to buy it in the regular marketplace albeit on a guaranteed issue and age rated basis as well as what less expensive coverage options might cost. With the right packaging and marketing, maybe we could build the political support to move away from this employer provided health insurance model which only exists because of an accident of World War II history related to getting around the government imposed wage controls that existed at the time.

    • Bart I. says:

      We pay for every other type of insurance we buy with after tax dollars. Health insurance should be no different.

      But health insurance is already different. It’s the only one where individuals are forced to insure other peoples’ costs as well as their own. The employer exclusion more-or-less reimburses low risk individuals for the added cost above an underwritten rate (while effectively subsidizing higher-cost individuals).

      Without favorable tax treatment for community-rated coverage, you have what’s almost a head tax for some in order to subsidize costs for others. I have no objection to the latter if that’s what society chooses, but would rather see the costs financed through the general fund and not a hidden tax.

      We should also provide them with information about how much comparable coverage to what they have now would cost if they had to buy it in the regular marketplace albeit on a guaranteed issue and age rated basis…

      Of course this is an artificial marketplace with dependent on whatever rules are chosen for age rating etc.

  2. John Fembup says:

    “We also would need to develop a mechanism to make sure every employee understood the full cost of his or her health insurance premium . . .”

    Barry I don’t disagree with your thinking. But as long as we’re wishing, I would first wish that there were some way to make everyone understand what they were taught thru 10th grade.

  3. Bart I. says:

    It’s tempting to use “across state lines” as a heuristic to weed out candidates who don’t have a serious proposal.

    But I suppose one could have a good proposal with this tossed in as padding, or have a bad proposal and not mention state lines. I guess it’s better ignored.

  4. Donald R. First says:

    Besides the network argument, there is or should be the number of plans option. Each option is exclude is a new plan, excluding 1 option doubles the plans. Then there is communications with Doctors advising them that plans with these options don’t cover certain items. Then I ask people which mandate would they like to exclude and Point out that mammograms were a mandate, and look what happened when someone said they really weren’t that necessary

  5. John Fembuo says:

    For years I argued that sellers of individual insurance should be freed of constraints introduced by state benefit “mandates”. This is what most people mean when they advocate “selling across state lines”. Such mandates oblige individuals to buy insurance for benefit features that many did not need or want, but their state requires them to buy anyway. This drives up their premiums.

    It now seems to me that the mandated minimum benefits in ARA make my argument somewhat moot. I do think the ACA mandates cause insurance to be more expensive than it needs to be. Well, so be it. I no longer feel this is an issue that is important enough to spend time arguing about.

    The ongoing, and almost untouched, problem remains the high cost of medical care in the first place.

    High cost medical care is the chief obstacle to obtaining treatment. Attempts to subsidize the cost of medical care through insurance schemes do not reduce its cost. Perversely, the subsidization only tends to make such costs rise. As costs rise, so must subsidies – and so must taxes. This is why I believe ACA cannot ultimately succeed and could not even if there were no political opposition at all: it is an insurance solution applied to a medical cost problem. It simply does not address the problem we face. Isn’t it time we faced that problem?

  6. Ron Greiner says:

    Exactly John, for years I have told politicians that I can set under a palm tree in Florida with a lap top and sell in 44 states with just one company, TIME Insurance. Of course they are going out of business in a couple of months so I will have to change to the number of states that United Healthcare is in, which is a bunch more states on Jan 1st.

    I think Marco Rubio might have a clue. He wants age-based tax credits for the purchase of Individual Health insurance and wants to limit the employer-based health insurance exclusion to that of the credits in 10 years as not to create disruption, too funny. The problem is you can’t manage this coming disruption. Our Fascist State with Blue Cross, employer-based insurance and the government happened incrementally. When FREEDOM happens in America it will be an explosion of FREEDOM.

    All the healthy people will leave the over-priced community rating of employer-based insurance and use the age-based tax credits leaving the sickos behind on the employer plans. Then they will just shut those employer-based plans down and America will be able to move on and United Healthcare and Blue Cross stock will drop like a rock.

    Of course those benefit directors at the large companies will be slammed on the unemployment rolls where they belong. They don’t have insurance licencees so they won’t be able to sell anymore.

    • Bart I. says:

      Why should healthy people who purchase inexpensive underwritten health insurance deserve or need a tax credit? You don’t seem to think the “sickos” who are left behind deserve anything.

      • Ron Greiner says:

        Bart I, everybody should get the same age-based tax credits regardless of health. That’s finally fair. The employer-based insurance tax dodge is much too large now. That way we as a country can save some money and quit borrowing from the Chinese.

        • Bart I. says:

          But what is the justification for the largess of universal tax credits? If they serve no purpose, why not simply reduce tax rates as Barry suggests?

          More likely if this happens, much of the money currently going toward the employer exclusion would instead be used to subsidize the risk pools that will be absorbing uninsurable people formerly using employer-based insurance.

  7. Ron Greiner says:

    Look at the Life Insurance that these government employers are selling to these poor employees. First, they make the employee do medical underwriting then sell them Minnesota Life and charge them way too much. A 40-year-old female pays $41.40 a month for $300,000 in Life Insurance. In the free and open market she can get coverage for less than half of that. Then if the woman gets cancer and can’t work anymore they raise her premiums. Look at the disclosure that they give the state of Florida and Pasco County employees:

    “You may be eligible to “port” (or buy) your basic and/or supplemental life coverage with you when you leave
    employment with Pasco County Schools. This portability option applies to basic and supplemental life policies. If
    you are [[not in good health]], you may be required to “convert” your coverage which will result in a much higher
    premium amount due.”

    The Life Insurance is just like the health insurance from an employer. If you get too sick to work you will lose this insurance. These benefit directors must think these uninformed employees are schmucks.

  8. Ron Greiner says:

    Here is the link to this employer-based Life Insurance. Notice how the life benefit is accelerated but restricted only if you can get a physician to say you are dead within 12 months. In the open market these employees could get coverage that accelerated benefits with a heart attack, open heart surgery, stroke, chronic illness or life threatening cancer that costs less than half that they don’t lose if they become too sick to work:

    It should be illegal for employers to sell any type of insurance to employees with non-licensed “benefit directors”.

  9. Bob Hertz says:

    The various benefit mandates in health insurance (for mental health coverage, for contraception, et al) appear to raise the price of insurance only about 5%.

    But guaranteed issue raises the price of insurance at least 25%.

    This is covered in an excellent piece by Keith Hennessey
    in 2009:

    In other words, if the Republican alternatives to the ACA keep guaranteed issue, these alternatives will have little effect.

    • John Fembup says:

      “The various benefit mandates in health insurance (for mental health coverage, for contraception, et al) appear to raise the price of insurance only about 5%”

      Well Bob, that’s an average difference across all states. If “buying across state lines” had been available in 2009 when the article you quote was written, the actual difference in premium between actual policies considered by an actual individual buyer would have depended on the actual states involved.

      The article observes that the average additional cost per state mandate was 0.5% of premium. The article also observes that the number of state mandates ranged from 6 to 48. The range of 42 mandates meant the maximum actual premium cost for state mandates differed among the states by much more than 5% and perhaps more than 20% depending on the states involved. This is the kind of difference that individuals would actually have used to make buying decisions – not some “average” across all states.

      A premium difference of 20% or even 10% would clearly have attracted the attention of individual insurance buyers living in states with more mandates. That is, it would have, if they had the opportunity to “buy across state lines”.

      But again, the enactment of ACA makes such thinking largely moot because of the array of federal benefit mandates ACA includes. Or, more accurately, because of the array of federal benefit mandates written into the regulations after ACA was enacted.