The Interstate Health Insurance Compact: An Idea Whose Time Has Come
In a recent Health Alert, I noted the very positive news that House Speaker Paul Ryan has appointed six task forces, comprised of Congressional committee chairmen, to develop a governing agenda. One of those tax forces has a mandate to develop (finally) the Republican alternative to Obamacare.
Two of the members, Dr. Tom Price (Chairman of the Budget Committee) and Mr. Fred Upton (Chairman of the Energy & Commerce Committee) have already sponsored health reform bills that would replace Obamacare, and contain tax credits for individual health insurance. I conclude Dr. Price’s version is superior, both in administrative simplicity and economic effect.
However, Mr. Upton’s bill (which is sponsored in the Senate by Senator Hatch and Senator Burr) includes a good idea absent from Dr. Price’s bill: An interstate compact for health insurance.
An interstate compact is (effectively) a treaty between the states, which is approved by Congress. For health insurance, it would solve a dilemma for Republicans who want a national market for health insurance, without federal regulation of health insurance. The traditional approach to this is federal law compelling states to allow “selling health insurance across state lines.”
Whatever the merits of the proposal, it poses a dilemma: If Congress mandates it, is that not federal regulation? An interstate compact avoids this problem. Further, it is the way we have solved other issues in both regulation of the health professions and other lines of insurance.
The Federation of State Medical Boards has established an Interstate Medical Licensure Compact, which now has 12 states signed up, and legislation pending in six more. This follows the Interstate Nurse Licensure Compact and the Physical Therapy Licensure Compact. What these compacts achieve is a national market for health professionals, because the professionals do not have to spend time and money earning licenses in each state.
With respect to insurance, the Interstate Insurance Product Regulatory Commission was established in 2006, and covers life insurance, annuities, disability income, and long-term care insurance. According to the commission: “In an increasingly mobile society, these are products that have a long life and will travel with people as they move across state lines.” That is what we want for health insurance, too.
The emerging House Republican health reform plan would benefit significantly from Mr. Upton’s proposal to allow states to establish a health insurance compact.
The medical licensure compact needs to cover telemedicine. There are states (like Texas) that try to protect brick & mortar physician practices because they don’t want interlopers providing services from afar.
Read the upton bill. mostly works. two points. the 5/1 vs today’s 3/1 would have been more accurate. now if you switch will cause another dislocation of premiums. yes states can waive. probably worth doing.
across state lines: have yet to see one insurance exec I know after 40+ years working in field, know what this helps or how to take advantage. think value is way overstated. large insurers sell aso and get around state mandates for bulk of their members. if you’re a single state insurer you don’t have network in other states. always sounds good but never seen good examples of how this is a benefit
Dave perhaps you have not thought this through. The principal value of buying insurance “across state lines” would not go to insurance companies, but to their customers – people who could purchase individual insurance at a lesser premium.
At present, large insurers can “get around” state mandates with a self-funded group contract. But not every buyer purchases group insurance; and not every group contract is self-funded.
The single-state insurers don’t need a network in another state, for the simple reason that they could sell a “cross-state” policy in their own state using their own state network. What they do need is the legal ability to sell a policy in their own state that contains the benefits approved by any other state. That’s a regulatory adjustment that would not require anyone to build new networks.
I recently posted an example here for the sake of discussion showing a potentially significant premium savings for a Connecticut buyer – if that buyer could have chosen a policy reflecting pre-Obamacare Alabama-mandated benefits vs Connecticut-mandated benefits,
Is something like this worth doing? Probably not, so long as Obamacare remains in its present form because Obamacare mandates a rich level of benefits for everyone. obamacare leveled out the differences among states that existed prior to Obamacare.
And keep in mind that insurance schemes can do little to solve the fundamental problem of obtaining medical care in the first place. Our fundamental problem is not the cost of insurance. It’s the cost of care. Unless that fundamental problem is directly addressed, we’re fooling ourselves to believe we can ever have “affordable” insurance.
I suppose you could also state: “I don’t like the building code in my municipality, so I want Congress to override the ordnance and allow me to build my building according to whichever building code I prefer.”
We either have a federal country or we don’t. But let’s forget the 10th Amendment issue. In the history of this country, when Congress acts to interfere with a state’s ability to make its own laws, do we see that increase liberty or decrease it?
So, back to the Supreme Court decision in the South-Eastern Underwriters Association case?
Well, John, I might not like that decision either, and might also prefer to see it overturned – but I wasn’t talking about that. At least, not yet.
I was re-stating my opinion that buying insurance “across state lines” is a misnomer, and the underlying concept is actually much simpler than either its proponents or its opponents make it out to be.
(For anyone who doesn’t know, in the 1944 SE Underwriters case, the Supreme Court ruled insurance is interstate commerce, therefore subject to federal regulation under the commerce clause of the Constitution).
John, you are leaving me confused. I don’t believe the feds should have any part of a states decision with regard to how it manages its affairs. I also don’t see the problem (assuming no ACA) with a state insuring someone who then gets sick in another state. Since that is the case I don’t see the problem with a person from one state buying insurance from a company in another state. The law might affect insurers that wish to call the state home, but I don’t see the problem with those insurers whose home is elsewhere.
Moreover, if there are problems that I don’t foresee then why not let the insurers work out the problem. If they can’t we are left in the position that exists today. If they can then we are better off.
Well AI, because of a Supremse Court decision over 70 years ago, the Feds do have the right to regulate the business of insurance. What you or I or John G. may believe doesn’t matter. ACA – and ERISA before that – demonstrate the Federales take that right very seriously,
Question: if you could buy a policy with only the benefits you want, from an insurer in your own state – why would it ever occur to you to go buy that same policy from an insurer in another state?
John F. what you say about the SC is true, but that doesn’t mean the feds can’t change the legislation. In fact a lot of this is nothing more than a power play where the feds are constantly desirous of more power, so much so that FDR tried to pack the SC.
In answer to your question, why shouldn’t I want to? When people learn about ways to save money somehow that information goes far and wide. I leave this question up to the innovative insurer that leaves his mark on healthcare reform. I’m just asking for all options to remain open.
If I’m a health insurer based in TX and I want to sell policies to people in NY and NJ, the primary points of competition between the TX insurer and insurers based in NY and NJ are scope of coverage, price per service, test, procedure or drug and the ability to manage patient populations in a cost-effective way, especially the highest cost patients.
The old argument for increasing competition by selling health insurance across state lines was based mainly on differences among the states in benefit mandates that state level regulators required each policy to cover. If TX had fewer benefit mandates than NY or NJ, it could sell a policy for less by not offering the benefits that NY and NJ mandated but TX didn’t. That whole issue is moot for now because of the ACA and the mandated essential benefits package that must be offered nationwide. Of course, if the ACA is repealed, state to state variation in benefit mandates could re-emerge as an issue.
As for prices per service, test, procedure or drug, patients will access care in their home state and the TX insurer will presumably have to pay those prices. When I was working, I had insurance with Highmark Blue Cross which is based in PA but I live in NJ and worked in NY and accessed providers in both states. Under the Blue Card system used by all the Blues licensees, the price paid to the provider is determined by the local Blue with whom the provider has his contract and Highmark pays that price. It doesn’t pay a possibly lower price that it may have negotiated with PA providers.
In the end, aside from the benefit mandate issue, if it comes back should the ACA be repealed, there is really no competitive advantage that I can see that an out of state insurer can offer. It’s not clear to me that anyone has a clear advantage in managing care either. While I don’t have a problem with offering health insurance across state lines, I see the issue mainly as a distraction that could take time, effort, and most importantly, political capital away from ideas that might actually make a positive difference in lowering the cost of healthcare which, in turn, would allow insurers to reduce the cost of health insurance.
Barry, you are correct if you limit the discussion to an insurer trying to sell policies to people in another state. A Texas insurer in your example, selling in New Jersey,
I think the central premium savings issue is different. It’s whether New Jersey residents could buy a policy in New Jersey from a New Jersey insurer, that contained fewer benefits mandates; e.g., by Texas, not New Jersey.
But this won’t change medical cost much, if any. I know you agree that the pathway to a solution to high insurance costs leads first through a solution to high medical care costs. No insurance scheme (like ACA ‘frinstance, or selling “across state lines”) can have a meaningful impact on the underlying delivery cost of medical care.
John F, I hear you, but some states have mandated crazy things and a lot of them along with the fact that variation and numbers increase competition. If it doesn’t work it just doesn’t work.
AI, the reason it would not occur to you is that the only premium savings from buying “across state lines” comes from the ability to purchase lesser benefits – if that’s what you want. See Barry’s comment above.
It becomes straightforward if you could just purchase the benefits you want in your own state.
You can’t do that now. It’s not legal. You have to buy what ACA tells you to buy. If ACA did not exist, you would have to buy what your state laws tell you to buy. Changing these laws is not something any innovative insurer can do.
“the reason it would not occur to you…”
John F. what occurs to me is that free marketplaces create things you can never imagine. Competition brings prices down so one might find that across state lines actually brings prices down.
This is not rocket science for capitalism has existed for a long time and has proven its value even though individuals from time to time state “in this case it won’t work”. Most of the times they are wrong, but sometimes they are right. If they are right in this case the insurers will not change what they are doing and it will be as before as if no change ever occurred.
Why are so many afraid of free competition?
We all recognize how the ACA makes “across state lines” near meaningless and we all recognize that some states might put up barriers. A funny thing happens to states and localities that put up too many barriers. Eventually they go broke.
“what occurs to me is that free marketplaces create things”
I agree in general. But where in the US is there an actual, free marketplace for insurance? That is the problem with one-size-fits-all Obamacare and, earlier, that was the problem with state monopolies dictating what insurance coverage individuals had to buy.
“Why are so many afraid of free competition?”
Because it’s too hard. In my 40+ years in the bidness world, I never met a manager or executive who really liked competition. It’s hard. It’s exhausting. And having competitors means you can’t just make products and bank revenues. No, you have to keep finding ways to reduce costs and improve your products and services. All the time. And if you cannot compete your company withers. No wonder bidness leaders don’t like it.
Which is exactly why smart consumers demand an economic system that forces suppliers to compete. Not because it’s good for suppliers. Because it’s good for the rest of us when we get better products and lower prices.
I believe there is a legitimate role for government in such a system; a minimal role. Sadly, governments seldom believe they can “help” enough in a minimal role.
John F., you ask “But where in the US is there an actual, free marketplace for insurance?” Nowhere, but that is the direction we should be heading if we want to affect health care pricing where access and quality are preserved. This method Barry might support is just too dam-ed expensive and will eventually lead to lower quality and denied access. Socialism doesn’t work and there is no such thing as social justice.
“I never met a manager or executive who really liked competition.” That is right, but I don’t feel like paying for their job security. We would have a free market today but for the fact that every part of every industry has an excuse that they are special and need to be exempted from the marketplace so they can be guaranteed their profits. But that comes at the expense of as you say “finding ways to reduce costs and improve your products and services. All the time.” I’m a physician and I hate the idea of a third party paying me outside of the marketplace so much that I was one of the last in my area to accept Medicare directly even if the price were the same. Doctors and hospitals are not serving their patients in the best manner they can by having their income guaranteed by Medicare.
You and I and Hayek are in substantial agreement. That should mean something.
For one thing, it means we’re both careful readers!
“We would have a free market today but for the fact that every part of every industry has an excuse that they are special and need to be exempted from the marketplace so they can be guaranteed their profits.”
Say what? I was in the money management business for 40 years and I never heard of an industry or a company that was guaranteed its profits. Even regulated monopolies like electric and gas utilities aren’t guaranteed their profits. I’ve seen hundreds and publicly traded companies go bankrupt over the years along with tens of thousands of private companies for a wide variety of reasons from poor management to adverse secular changes in the demand or need for their products to globalization.
Some industries have high barriers to entry like manufacturing cars or commercial aircraft. Others have low barriers like restaurants and small retailers. I expect doctors to have a license to practice and appropriate credentials in their specialty. In a free marketplace, should anyone be able to hang out a shingle and call themselves a doctor? I hope not.
Doctors, for their part, have a long history of trying to stifle competition at every turn to protect the guild’s monopoly. Recent examples include resistance to allowing NP’s to practice at the top of their license without direct supervision by an MD and opposition to primary care clinics in retail stores staffed by NP’s. Vigorous competition is a good thing but some regulation is appropriate and necessary.
Barry, I didn’t say anyone was guaranteed profits rather “every industry has an excuse that they are special and need to be exempted from the marketplace so they can be guaranteed their profits.” Whether they get the guarantee they desire or not in varying forms is something else, but the desire is there as are the excuses. That attitude though not fulfilled has led to more government intrusion than necessary.
Take note that quote was responding to John’s statement: “I never met a manager or executive who really liked competition.”
What we desperately need, of course, is a mandate that all insurance, including Medicare, Medicaid, VA and Obamacare be available to purchase medical care overseas, in Cuba, Mexico, Costa Rica, Brazil, Argentina, etc., where prices are much lower. That would do more than anything to rationalize medical care pricing in the USSA.
Jimbino, just curious – where do you live?
Gentlemen:
You are all passionate, learned and imaginative. But!
There is too much wiggle room for the Feds to continue to dominate both health policy and individual business decisions. And now, decisions by individuals. We clearly have a mixed economy and it is becoming nearly impossible for individuals to understand all these permutations. The new Republican plan should be as simple as possible.
The more buyer decisions are forced through a series of hurdles, the less competition can work. And the more purchasing is aggregated in some way, the less the numbers mean.
The field is already burdened by so much brick and straw laid onto previous policy and regs that it is nearly impossible to look at a list of charges and have any idea what relation those prices bear to actual costs. One of the difficulties in setting rational policy is that the Feds and State regulators alike tend to fuss around about prices which they refer to as “costs,” when they are far, far from costs. The service provider has no incentive to deal forcefully with actual costs because cost shift is still not only possible but tolerated at a level that is truly horrendous. Medicare and Medicaid pay less than costs in many cases, so a good metric to obtain is how much of prices reflect this cost shift. The public and private health plan members are given premiums to compare which cannot convey any understanding of the cost of the care that will be given, and not even the retail prices. Competition is centered on premiums, so competition among providers themselves is blunted by hiding behind the health plan’s skirts.
Policy makers do not comprehend how pervasive are the regulations that providers must follow and how costly the effects.
At any rate, all of our commentators should try to keep a distinction between prices and cost and factor in quantities. That is, a hospital system with a below “average length of stay” in a hospital is likely to have either one of two strategies: keeping costs down By restructuring the care process or sending patients home too early. Comparisons of price alone may seem a good analysis to do, but it is lazy and done that way because that is the kind of data now available.
Setting up new payment methods that take a defined bite out of the total patient mix may do little overall, because basic costs will simply be spread among all other patients.
Health policy is so confused that it would be a very valuable step to write new model laws that reconsider all the regs as they now affect modern care and costs.
Start with professional licensure. Go to labor rules, then to mandates, then to capital requirements.
As long as policy is so confused it is a fool’s errand to publish treatises with hospital comparatives of just raw charges.
Wanda Jones
San Francisco