Selling Health Insurance Across State Lines

Here we go again: Republican politicians are rolling out the easily digested soundbite of “selling health insurance across state lines” as a solution to high premiums.

In the New York Times, Margot Sanger-Katz examines the idea:

At the Fox News Republican debate last month, Donald Trump offered a way to lower health care costs: allow insurers to sell their policies across state lines.

The idea of developing a more national market for health insurance has become a major part of Republican health reform orthodoxy. A bill to allow interstate insurance sales was introduced in Congress in 2005, and, since then, has been a part of the platform of every Republican presidential nominee. Mr. Trump is not alone in his view: Scott Walker, Marco Rubio, Ted Cruz, Rand Paul, Rick Santorum and Bobby Jindal have all endorsed it.

The only problem? It makes no sense. “I’ve tried for 10 years to explain this to Republicans; it is a big problem,” said Merrill Matthews, a resident scholar at the Institute for Policy Innovation.

Put me in the same boat. Besides Mr. Matthews, I can think of only one other free-market health policy analyst who shakes his head at this.

Years ago, I wrote a couple of articles about this conceit, and they had no impact because Republican politicians know it can be easily swallowed by constituents who have little understanding of health insurance. Unfortunately, it also indicates that the Republican politicians proposing it have little understanding either.

Comments (19)

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  1. Barry Carol says:

    Count me among the skeptics regarding the value of selling health insurance policies across state lines too.

    Where are the savings supposed to come from? Administrative costs for the large insurers are likely to be about the same as long as they have reasonable critical mass. State insurance mandates beyond what the ACA requires are likely to persist under the doctrine of states’ rights. The ACA has defined a minimum essential benefits package that insurers must offer no matter where the policy is sold. Utilization of medical services on an age and risk adjusted basis is likely to be driven mainly by physician practice patterns which can vary considerably from one state or region to another and even within a state in some cases. Those cost differences will also be reflected in premiums no matter where the insurer who sells the policy is based.

    The bottom line is that selling health insurance policies across state lines may make a nice sound bite but is unlikely to save consumers any money to speak of. I view the advocacy of this concept as little more than political hackery. Republicans need to do better.

  2. Jimbino says:

    I have to disagree. There is a reason you can incorporate in Delaware regardless of where you live or where you have your corporate headquarters. The reason is that Delaware grants more benefits for less cost and less bureaucracy.

    Consumers would likewise benefit if states like Delaware could licnese insurance companies to service all other states.

    The real benefit to the healthcare consumer would come from permitting healthcare dollars, whether Obamacare, Medicare or Medicaid, to be spent overseas. The gains would amount to some 67% in Mexico, 50% in Costa Rica and Brazil, even more in Argentina and in Cuba, where abortion on demand without hassles has been available for decades.

    And the medical/dental dollar would go 9 times further in India and Thailand.

    Americans are fools for being so imprisoned by insurance and so without the choice that many cash-paying medical tourists, like me, have long been enjoying.

    • Devon Herrick says:

      I participated in a panel discussion with an HR executive at a furniture manufacturer, who includes Costa Rica and India in its provider network. As I told the panel, I don’t think we can all go to India for medical care. But we don’t have to. Once it’s established that workers have that alternative, local providers will begin to offer better deals. It’s in the early stages, but firms like Compass and Vitals already help steer workers to cheaper sources of care. It just has to catch on. The Cadillac Tax may prod the process along.

    • Thank you. You can only incorporate a corporation in one place, for the obvious reason that the corporation is an artificial person. The corporations act has nothing to do with the actual goods or services the corporation is trading.

      WRT medical tourism, that has to do with doctors, clinics, and hospitals, not insurers. Indeed, U.S.-based insurers offer policies that cover providers in Mexico, to groups that employ Mexican immigrants.

  3. Beverly Gossage says:

    Agree.It makes no sense.
    If we repeal Obamacare then the regulation of insurance for small businesses and individual policies returns to the states. We all know that large, self funded group plans are subject to ERISA and not regulated by the states. Allowing across state lines purchases, therefore, is addressing this first smaller market.

    Currently each state funds its Insurance Department, high risk pool (if operating) and, in some cases, the general fund by imposing a tax on each of these policies written for a resident or company domiciled in the state. Repealing Obamacare would allow carriers to write policies and determine rates based on risk of the insured at application (which includes, age, health status and history, build, tobacco use, etc.), state regulations, and provider contracts in that area.

    The general public and many GOP legislators think if they go to ehealthinsurance and find a cheap rate for a plan in KS, their constituents in NJ, for example, can buy that plan and get that price. They also think that if enough NJ residents buy a KS policy, that the legislators in NJ will be forced to change their regulations to get some of that business back in NJ. This is a false premise.

    Here’s the problem:

    1) Writing a law that forces a state to allow its residents to buy a policy subject to the regulations of another state puts the federal government back in the driver’s seat in controlling states’ health insurance. Even with Obamacare, they feigned that regulation remains in the states. Permitting the federal government to do this would open up the commerce clause since insurance would no longer be confined to the state in which one lives. Isn’t that what we in this group want to eliminate? Don’t we lift the banner of the 10th amendment? BTW: I know Dems who are totally for this idea for that reason.
    2) Though the applicants may be identical risk and the mandates in KS are certainly fewer than in NJ, the provider contracted rates in his area of NJ may be very high or nonexistent with that carrier. This NJ resident may not be happy with his plan if he must pay for all costs out of network and/or out of pocket.
    3) It becomes more complicated than that. Who gets the tax on this policy? To which insurance department does this NJ resident file a complaint if the carrier does not fulfill its contract with him?
    4) I was invited to speak at an NCSL conference (yeah, I’ve not been invited back). After my presentation, the co-chair of the health committee was a physician senator from NJ who asked if I could come and help them in NJ. I asked if they would be willing to eliminate the regulations that were causing their rates to be high, such as guaranteed issue and community rating. He shrugged and said probably not. It is up to the citizens of NJ to change their regulations that have kept their premiums near the top of the board. The citizens of NJ and other highly regulated states must elect representatives to amend regulations and mandates if they want policies with doctors in their area at a rate they can afford.
    5) States who want to develop reciprocity and allow citizens to buy across their state lines, can do so and can determine who will receive the tax from that policy and which department will oversee it without involving the federal government. I have met with several of the ID commissioners and we discussed this. They are open to the idea of reciprocity. We all know the federal government will not stop at policing citizens buying across states lines. That power will be expanded. It always is.
    6) Most people are not aware that currently (even PreACA) if you purchase a policy in your state and move to another state, you may take that policy with you as long as that carrier is licensed and writes policies in that new state. You merely call the carrier with your updated zip code and they tell you your new premium and the policy continues.

    • Barry Carol says:

      Beverly – I see that you are an expert on insurance so maybe you can clarify a couple of things for me.

      First, while the ACA was not what I would have designed if it were up to me, I see it basically as a response to a market failure that left way too many people uninsured including many who need insurance the most. For young healthy people who want a bare bones policy at a very low price, the old medical underwriting environment served their needs quite well, especially for males who didn’t need or want to pay for maternity coverage.

      On the other hand, older and sicker people often could not buy a policy at any price because they couldn’t pass underwriting and insurers felt that they couldn’t charge enough in premiums to cover the likely claims risk and even if they could, nobody but the very wealthy could afford to pay it. The most plausible solution to that problem was high risk pools which 35 states had in one form or another before the ACA was passed. One insurance expert told me at a conference that the typical medical loss ratio on these policies was between 250% and 300% even with comparatively low benefit caps and less than complete coverage.

      There also needed to be a mechanism to subsidize even reasonably priced policies for lower income people who earned too much to qualify for Medicaid. The ACA tackles that issue head on.

      My theory about why high risk pools never worked is because it would have been extremely expensive to fund them adequately while charging premiums that the insured could afford to pay with the rest having to come from general state revenue and surcharges on insurance policies. Politicians viewed the likely cost of that as too high to justify as it would require them to spend way too much money on to cover relatively few people as a percentage of their population. Is this the reason that high risk pools didn’t work and, if not, what is? Is there a way to improve upon what we had before at a cost that the states could afford?

  4. Bob Hertz says:

    Buying across state lines was an effort to undercut the rather few states that imposed some form of guaranteed issue pre-2009.

    New York state for example had both guaranteed issue and no age rating on premiums. So a 30 year male paid $500 a month and so did a 64 year old female.

    The 30 year males would read about getting a policy in a full-underwriting state like Arizona for $80 a month.
    They would buy across state lines in a heartbeat.

    Obviously this was and is shuffling the deck chairs on the Titanic.

  5. Devon Herrick says:

    I (at least in theory) favor allowing insurers to sell insurance across state lines. But, I doubt if insurers would really want to.

    An argument often used is that insurers wouldn’t have a network set up in other states. This is especially true today. We are seeing many health plans experiment with narrow networks.

    Another reason that selling insurance across state lines does not make a lot of sense is that the sole reason for advocating for cross border sales was to force competition among states. But Obamacare effectively got rid of states’ prerogatives with respect to insurance regulations.

  6. John Fembup says:

    I think the value of permitting interstate sales is more than theoretical, and less than its most strident advocates claim.

    But – and this is important – the primary benefit is to offer consumers more choices of lower-cost insurance. That’s because it would give residents of states with more coverage mandates the choice of buying a policy in a lower-mandate state – if they wish. That would not necessarily reduce the cost of medical care by a nickel. It would not necessarily cause states to “compete” to keep premium tax revenue (no such response accompanied the trend toward self-funding, which involved far more people.). It would just give people more choices that might help them save insurance cost.

    Seems to me the Feds could provide that anyone may buy a policy that is approved by the regulatory authority of any state.

    Keep in mind that the feds and the Supreme Court tell us on one hand that insurance is “interstate commerce” (one of the justifications for ACA, btw) but in their other hand the Feds hold up McCarran-Ferguson, which gives sole authority to the states for insurance regulation.

    If an insurer doesn’t have a network in a given state, sure it’s silly to suppose it will build one just to capture a trickle of out-of-state business. But why would that affect the Blues who already have networks in every state? Or Aetna, Humana, CIGNA, and United, who among them already have networks in virtually every state?

    I providing consumers with additional, more economical buying choices is worth addressing. That’s the main reason to consider so-called cross-state insurance sales.

    • Barry Carol says:

      John – I get your point about state to state differences in coverage mandates affecting premiums. However, suppose the ACA were repealed but guaranteed issue were kept in place as long as the prospective insured could show he had prior creditable coverage before seeking a new policy with a coverage gap of no more than 63 days. That’s the way it worked in NJ before the ACA became law. NJ policies were priced based on community rating and were thus expensive especially for young people.

      The issue then becomes how do we define creditable coverage? If someone bought a mini-med plan in a distant state and later was diagnosed with a serious disease or was badly injured in an accident, should he be allowed to upgrade to a comprehensive plan from the mini-med on a guaranteed issue basis with age rating? I would say no.

      Presumably, an actuarial rating could be determined for any policy offering. I could see allowing a 30 point upgrade at most, say from 60 (ACA bronze level) to 90 (ACA platinum) if the customer can find one. I doubt if a mini-med plan would have an actuarial rating much above 10, if that but I don’t have any data on that.

    • It IS permitted. It is not forbidden. Indeed, at least two states tried to encourage it and achieved nothing.

      Your argument would be the same for taxes: I’d prefer to pay Florida income taxes (i.e. zero) rather than Virginia income taxes. So, I have to vote for legislators who will lower taxes. I can’t ask the federal government to allow me to pay whichever state’s income tax I would prefer!

  7. John Fembup says:

    Perhaps. But repealing ACA is an enormous hypothetical, wouldn’t you agree?

    • Barry Carol says:

      Absolutely and I don’t expect it to be repealed though most republicans keep calling for a repeal and replace strategy. I haven’t been very impressed with their ideas so far.

      I can envision a few tweaks here and there but nothing that would disturb the basic structure of the subsidies and the exchanges and the Medicaid expansion provisions.

  8. Bob Hertz says:

    Let’s say that a few smaller states like Delaware or South Dakota passed a new law that allowed health insurers to underwrite again. (at least I think they could still pass such a law.)
    An enterprising health insurer then offered a high-deductible product, maybe even indemnity insurance, and only issued the product to very healthy persons.
    Such a product could even pay out a fixed amount of cash upon diagnosis, so that the insured could use the money for medical tourism.

    The initial premiums would be affordable to many, even without any ACA subsidies since these products would all be “off-exchange.”
    This would be a huge threat to what remains of the federally regulated market.

    I wonder how Washington would try to fight this off.

    • Barry Carol says:

      I don’t think a state could pass such a law now because it would directly conflict with federal law (ACA) which doesn’t allow health status to be taken into account when selling a policy. Federal law generally trumps state law when there is a conflict, doesn’t it?

  9. civisisus says:

    Listen up, children:

    Cross-border health insurance sales is an especially ridiculous reactionary wet dream.

    Georgia’s Teeper insurance commissioner’s own remarks after the idiot tried it there a few years ago:

    Ralph Hudgens, quoted in the Atlanta Journal-Constitution:
    “Nobody has even asked to be approved to sell across state lines,” Georgia Insurance Commissioner Ralph Hudgens said. “We’re dumbfounded. We are absolutely dumbfounded.”

    Moral of the story: don’t be dumbfounded.

  10. Bart I. says:

    It’s just campaign boiler plate that should have been purged long ago.

    Ironically these tend to be candidates who otherwise say they want to get the federal government out of health care.