Selling health insurance across state lines is not that simple
It would seem to be a no-brainer: why not allow insurance policies to be sold across state lines? There are such huge differentials in state regulations and prices and policies, why not let market forces operate and give the consumer more choices that way?
But allowing health insurance to cross state lines is nowhere near as simple as that. See this, for example. The problem is not just a question of state regulations (although that is part of it), it’s economics and the peculiarities of the health care market.
For example:
“Currently individual states can decide whether or not to allow insurers to sell plans from another state in their state,” the Center for Health & Economy wrote…“However, even where this is allowed, various barriers such as the difficulty of building a network and attracting enough customers to create a large enough risk pool make it unappealing to insurers to pursue this option.”
And there’s the rub, which is a similar problem President Obama’s Affordable Care Act has faced with risk pools not having enough healthy people buying policies to pay the mounting costs of the sick.
“Sales across state lines would reduce premiums for those who are healthy at a given time while increasing premiums and reducing access to coverage for those with current or past health problems,” according to an analysis earlier this year by the Urban Institute’s health policy center.
Furthermore, consumers need to have an adequate network of doctors and hospitals in order to get the care they need and that means insurers have to spend more money to pay these providers. Since it’s a costly proposition for the insurers to build these networks of doctors and hospitals in new regions, health plans aren’t generally willing to enter new markets, analysts say.
Several states, including Georgia, Maine and Wyoming have passed laws allowing companies from other states to come in and compete for patients. The Georgia experiment is particularly noteworthy, given that it was highly praised by Republicans when it passed the Legislature in 2011.
Five years later, there have been no takers. Maine and Wyoming have had no better luck attracting insurers.
“As much as people talk about the Affordable Care Act as a national system, all health care is essentially local,” said Rene Santiago, director of the Santa Clara Valley Health and Hospital System. “It all comes down to the doctor-patient relationship and the willingness of doctors and health care providers to enter into agreements with insurance companies.”…
It’s not just that the market is different from Mississippi. The health care market in Northern California is vastly different from the Central Valley and Southern California markets.
Both of the articles I linked to in this post are written from an anti-Trump perspective. But I had read similar facts before about the difficulty of insurance being sold across state lines, long before Trump’s candidacy and even long before Obamacare was passed.
The American Enterprise Institute has chimed in on the topic as well, explaining somewhat better what the conservative point of view is:
It is clear that regulatory competition can’t work if the federal government is the primary regulator. That is why Republicans also support returning regulatory authority to the states as part of a broader reform of the health system. But even in that context, one should not expect interstate sales to significantly reduce the cost of health insurance.
A health plan offered in New York City will charge a higher premium than the identical plan offered in rural Colorado because of differences in those markets other than regulations. New York City has higher costs for housing, food, and other consumer purchases, and those costs are built into the prices of medical services. New York has an older, less healthy population that uses more medical services. In addition, New York has more local physicians and greater access to expensive medical technologies, which also drives up the cost of coverage.
Supporters of allowing insurers to sell across state lines are making an important policy point. Health insurance in this country is overly burdened by regulations that raise costs without providing value for many consumers. Even with substantial subsidies, enrollment in exchange plans has fallen well below what was expected when Obamacare was enacted. Reforms are needed to make the individual insurance market more responsive to consumers and taxpayers.
Regulatory competition is one tool in establishing a balance between cost and consumer protection in health insurance, but it must be part of a broader reform agenda to be effective.
I’m puzzled by one sentence in that AEI article: “supporters of allowing insurers to sell across state lines…” But it is already completely legal for insurers to sell across state lines; they are allowed to do it, it just doesn’t make much sense to do it at the moment.
If you want to see other possible drawbacks to selling health insurance across state lines, take a look at this. Are these just scare tactics? Or are they valid projection of what would probably happen?
Neo,
Your complaint near the end that “it is already completely legal…” to sell across state lines is belied by an article statement listed earlier.
“Several states, including Georgia, Maine and Wyoming have passed laws allowing companies …”
So states that are NOT Georgia etc. are states where it is illegal. Perhaps you meant to say that it is already federally legal to sell across state lines. I’m guessing that there are state laws preventing this. I know that CA uses an iron fist and a million pages of regs. to throttle insurance corps. operating here.
Selling health insurance is not a problem at all. You just sell it to the people who can afford it.
I’m being glib, but really it’s not capitalism in any way shape or form to make something affordable by such convoluted artifices.
At least not laissez-faire.
Speaking of how sellers are suppose to use a system which is not designed to do this at all, is why there are all sorts of problems.
I am Captain Obvious.
A knotty problem without a simple solution.
According to the WA state insurance commissioner’s site: In 2015 WA had twelve insurers selling 143 plans on the Obamacare exchange. Additionally, eight insurers sold 67 plans outside the Obamacare exchanges.
Those facts would seem to offer a fair degree of competition, but some companies will only insure in the major populated counties and some do not have agreements with certain hospitals or doctors. Such has been the case for our daughter. There is only one insurer who provides coverage at hospitals and doctors she wants to use. (She knows the medical field pretty well.) As far as she is concerned that company has a monopoly. Her premiums and deductibles have gone sky high under Obamacare, but because she is a small business person who earns above the subsidy level, no one who favors Obamacare cares.
Yes, there are big barriers to selling all over the U.S. Yet there are a few companies that do sell in many states such as United Healthcare, Kaiser, Anthem, Blue Cross/Blue Shield, and Aetna. These companies have all done quite well under Obamacare, so maybe there is a model for a few huge companies to compete all over the country. I’m sure they would not like such a model.
The real answer to reducing insurance costs is reducing medical costs – an issue that Obamacare didn’t address and Trump is unable to do until he can get rid of Obamacare and work on things that actually bring down medical costs. Steps such as these suggested in this article:
https://www.forbes.com/sites/realspin/2013/03/20/to-bring-healthcare-prices-down-consumers-must-demand-price-transparency/#1b3ef015ae27
TommyJay:
Yes, of course we are talking about federally legal, because the context is federal action by the GOP in Congress to replace or reform Obamacare. The US Congress can only pass federal laws that affect every state. So they can either allow states to do it or prohibit them. Right now it is allowed, but many people seem to be under the mistaken impression that it is forbidden.
I ran across this article some time ago about the factors causing premium prices to rise and the two big ones were guaranteed issue (15-30%) and community rating (19-35%), followed by essential health benefits (8%) and actuarial value (8.5%) Namely Obamacare regulations.
This analysis is about increases, so it doesn’t deal with possible factors that might have kept premiums from rising even more.
http://dailysignal.com/2017/03/23/to-lower-premiums-congress-must-roll-back-obamacare-regulations
J.J.:
Many insurance companies sell policies in many states. But they have very different prices, rules, and networks in those different states. They are not the same policies and are therefore not portable as is.
Yes, there are lots of local hospital groups that would need to be considered, but Blue Cross/Blue Shield ought to be ready to go national on short notice. Ditto Aetna or Kaiser or several other health insurance companies that have artificially segregated their operations state by state.
And one good point; if you get sick away from home, having a national health insurance plan would make things a LOT easier.
“Nobody knew that health care could be so complicated.” Donald Trump.
Everyone but Trump knew this….
Ken Mitchell:
As the articles point out, the segregation is not “artificial.” States are very different, and to be ready to go would require a lot, and in addition insurance companies would not necessarily want to set up shop in every state.
Don’t cover preexisting conditions.
Problem solved, and we can go back to being free to live our own lives again.
Or we can continue being the miserable slaves of the irremediable dysfunctions of others.
I wonder if for those with “pre-existing conditions” it would be possible to break insurance into actuarial insurance for everything else but, and some kind of government program for the say, condition of self-induced diabetes.
Spillover effects through the body probably makes that impossible.
I guess we should just all be wise enough to make sure that we never share a political space with people having these kinds of problems.
Also wonder how long it will be before progress in genetic medicine makes much of this discussion moot.
Soon, I hope.
Even your zip code may determine what is available.
Neo: “Many insurance companies sell policies in many states. But they have very different prices, rules, and networks in those different states.”
Just so. Washington state is particularly tough to do business in. The state regulations here are quite draconian. They were not as bad as Obamacare, but enough so that the state transitioned to Obamacare without missing a beat.
That is one nice thing about Medicare. It covers you everywhere in U>S. Outside the U.S.? Well, there is a travel insurance industry that provides that coverage. We’ve never had to use it, but know two people who have. Veritable life saving stuff. Both suffered falls with broken bones, emergency hospitalization, and evacuation back home. Don’t leave home without it.
J.J. Says:
May 9th, 2017 at 5:16 pm
Neo: “Many insurance companies sell policies in many states. But they have very different prices, rules, and networks in those different states.”
Just so.
* * *
Exactly the point. Since every state wants to tell you what kind of insurance you can or can’t have, at whatever prices they think are reasonable, there is no real portability of insurance if you move to another state.
An old post from my long-dormant blog, inspired by a Bookworm Room post, that touches on a part of the across-state-line question: it effectively cedes insurance regulation to the state with the most lax standards, not necessarily such a great idea:
http://problemiserisa.blogspot.com/2010/01/of-across-state-lines-and-erisas-roots.html
Every state has an Insurance Commissioner, usually elected, and a huge regulatory Department of Insurance.
A majority of the recently elected Insurance commissioners of Louisiana are now convicted felons.
I’ve been skeptical that buying accross state lines would substantially reduce the cost of health care. Certainly it won’t hurt, it offers a hedge against monopoly, and there isn’t any reason not to allow it (ok, so a company may not find it profitable, but that’s no reason to prohibit them from doing so).
On the other hand, I do question some of these statements “attracting enough customers to create a large enough risk pool” why can’t insurance companies selling across state lines add interstate customers to existing risk pools? If I’m selling insurance across county lines in New York, why can’t I sell across the state line into New Jersey? That sounds suspiciously superficial to me.
Seems to me the difficulties of selling across state lines is overstated. If I get sick out of state, BC/BS covers me. The policy is through my employer, not an obamacare exchange.
Seems to me that it wouldn’t matter where the policy originates from, as long as the company pay the bills it’s contracted to pay IAW the policy. Either X amount per visit or day in the hospital, or X percent of the bill.
“selling across state lines” was one of those things everybody said without wondering where the magic was.
As has been noted, each state has its own insurance regulations. That’s not a problem. The company designs a policy which will fly in the state in question, files it, and gets approval.
Point is, it’s not like the ones in a neighboring state.
Much of the reasoning, such as it is, has to do with premium. And premium has to do with local health care costs. Usually it’s highest in a major urban area and might be fifty percent less far outstate for the same policy. So if you see a cheap premium in downstate Indiana, don’t think they’ll sell it to you if your address is in Evanston, state lines notwithstanding.
Some contracts–few–had a network in which coverage was good and none outside the network. Some had coverage in a network which was better than if you had to go outside the network, but you got coverage either way. And some did not have a network and coverage was wherever you got it. The last was usually more expensive. The network-only plans were rare and not popular with employees if the employer used it.