Improving Value

Selling Health Insurance Across State Lines

In light of the varying cost of coverage around the country, one frequently proposed strategy is to allow consumers to purchase health insurance across state lines.¹ There are various  theories offered for this strategy: increased competitive pressures will lead to more choices and better, more affordable products; multiple states create larger risk pools which help stabilize insurance premiums; interstate agreements offer the potential of simplifying or streamlining insurance regulatory tasks; and consumers can take advantage of the purported lower costs in states with less regulation.²

However—as discussed below—there is no evidence that this strategy will actually benefit consumers. In fact, the approach is generally disavowed by state regulators and health economists.

Selling Across State Lines Already Permitted, but No Takers

Currently, nothing prevents an insurance company from selling policies in every state in the nation. Companies only need to create policies within each state that comply with local laws and be licensed by the state regulator.

In addition, there is no federal restriction to across-state-lines health insurance arrangements.³ Instead, the issue appears to be lack of interest among sellers. In 2012, the Georgetown Center on Health Insurance Reform studied states that passed laws to allow out-of-state insurance sales. Not a single out-of-state insurer has taken them up on the option.^4,5

New Proposal Differences

What’s under debate is whether or not to ease the requirement that the insurer must be licensed in each state where it wants to sell or be subject to a “compact” arrangement mutually agreed to by state regulators.⁶

For example, the Empowering Patients First Act of 2015, would have allowed insurers to select a “primary state” that would govern plan coverage.⁷ The insurer would need to be licensed only in the primary state of its choosing, though the insurer could sell its primary-state-approved health plans nationally. As a result, insurers would not need to adhere to the differing state laws in which they are selling insurance plans.

A Race to the Bottom?

Regulators and consumer advocates worry that selling across state lines will lead to a regulatory “race to the bottom,” where insurers will cluster in the  state with the fewest regulations (as seen with credit card companies)⁸ but sell the product nationally.⁹ This would preempt consumer protections in other states¹⁰ and likely reduce or eliminate consumers’ ability to seek recourse for a bad actor insurer. In addition, it is unlikely that consumers could easily identify quality and coverage differences between plans.  

Benefit Mandates Don’t Drive Premiums

Proponents of selling across state lines argue that variation in regulatory requirements--like benefit mandates—increase premiums. While there are differences in state regulatory requirements, economists believe these have a very minor impact on costs.¹¹ For example, pre-ACA studies found that most benefit mandates added little cost to premiums (although there were exceptions).^12,13 Since measuring the cost impact of specific mandates is difficult,¹⁴ some resort to comparing the absolute number of benefit mandates across states to explain premium differences, but researchers have found limited correlation between premiums and the number of mandated benefits.¹⁵

It’s unclear how much state variation will be reintroduced if the ACA is repealed. Regulations that were imposed at the federal level (individual and employer mandates, “essential health benefits,” minimum actuarial value, prohibition on excluding pre-existing conditions, guaranteed issue and renewability, modified community rating, rate review standards, risk adjustment, and minimum medical loss ratio) might be at the state’s option, potentially having a substantial impact on premium differences between states.

Risk Pooling Concerns

A regulatory “race to the bottom” would also create a risk pooling issue.¹⁶ If insurers selling across state lines establish themselves in states that allow bare-bones health plans, healthy individuals are likely to purchase these low-cost plans. As a result, insurers based in states with broader consumer protections and mandated benefits will attract only the sickest and highest-cost enrollees, leading to  higher premiums that could compromise the viability of those insurance pools. Meanwhile, states with rules that allow insurers to cherry pick the healthiest, and therefore least expensive, enrollees will have lower premium rates.¹⁷

Entering a New Insurance Market is Difficult

Proponents hope that selling across state lines will increase competition, but proponents must acknowledge the significant challenges in entering a new insurance market. In fact, the Georgetown study cited implementation challenges in all six states that passed across-state-lines legislation.¹⁸ The new laws did little to address the most significant barriers to entry, including the enormous hurdles of building or leasing local provider networks, negotiating competitive provider reimbursement rates, and dealing with provider shortages in rural states.¹⁹

Do Consumers Need More Choices?

Repeal of the ACA may lead to increased variation in the health insurance products sold within states. Moreover, layering on a policy that permits selling across state lines may further increase consumer product options. Alternatively, the only products for sale may be those from states featuring the least regulation, with little carrier interest in selling in more highly regulated states.

Either way, policymakers and regulators should ask, would this leave consumers better off? Research is very strong that consumers hate insurance shopping²⁰ and are overwhelmed by  too many choices.²¹ Further, consumers do not want products that would leave them under insured or unable to access services. If new offerings lack important benefits and consumer protections, we haven’t made consumers better off. Unfortunately, unlike other products and services, health insurance is complicated. It is extremely difficult for consumers to distinguish among their options, so they prefer that the choice set feature a limited number of good quality choices.²² 

Consumers Unlikely to Benefit

Proponents of selling across state lines argue that this strategy will increase competition and lower premiums, which are a significant burden to many Americans. However, the factors that have the most profound impact on premium rates are not addressed by cross-state sale of insurance. Indeed, selling across state lines is likely to  make consumers worse off by eliminating consumer protections, restricting access to policies, decreasing benefit coverage, limiting how insurance regulators can assist customers within the state and increasing premiums for less healthy enrollees.

It is a mistake to divert attention from the factors that really lower premiums, such as forming high quality, high value provider networks, reducing wasteful spending, and addressing high prices and needless price variation. Other efforts that may lower premiums (but are less consumer friendly) include narrowing networks, providing less comprehensive coverage, or requiring higher consumer cost-sharing. Yet none of these potential strategies, consumer friendly or not, require a selling-across-state-lines policy to implement.

State Regulators Do Not Endorse

State regulators broadly reject the notion that selling across state lines will benefit consumers. The state insurance commissioners say that allowing insurers to pick and choose among state markets in which to sell coverage is tantamount to allowing insurers to choose their own regulators.

Notes

1. Armour, Stephanie and Anna Wilde Mathews, “Crossing State Lines Is No Easy Jaunt for Insurers and Local Regulators,” The Wall Street Journal (Dec. 3, 2016). For example, Congressman Tom Price proposed amendments regarding an interstate market for health insurance. HR 2300 Empowering Patients First Act 2015.

2. Corlette, Sabrina, et al., Selling Health Insurance Across State Lines: An Assessment of State Laws and Implications for Improving Choice and Affordability of Coverage, Robert Wood Johnson Foundation, Princeton, N.J. (October 2012); see also Blumberg, Linda J. and Karen Pollitz, Cross-State Risk Pooling Under Health Care Reform: An Analytic Review of the Provisions in the House and Senate Bills, Urban Institute (Mar. 2010).

3. The ACA’s section 1333permits states to form healthcare choice interstate compacts to allow insurers to sell policies in any state participating in the compact. Two or more states may enter into compacts under which one or more insurance plans may be offered in the such states, subject to the laws and regulations of the state in which it was written. The insurer is subject to the market conduct, unfair trade practices, network adequacy, consumer protection, and dispute resolution standards of any state in which the insurance was sold.

4. Corlette (Oct. 2012); see also Rovner, Julie and Francis Ying, “Sounds Like A Good Idea? Selling Insurance Across State Lines,” Kaiser Health News (May 11, 2016).

5. The National Conference of State Legislators provides a good overview of state activity around interstate insurance sales. National Conference of State Legislators, Out-Of-State Health Insurance - Allowing Purchases (accessed on Dec. 15, 2016).

6. The federal McCarran-Ferguson Act (1945) grants states the right to regulate health plans within their borders. Note that “self-insured” or “self-funded” health coverage usually offered by large employers (especially with 500+ employees) is not regulated by states and is guided by the federal ERISA law, administered by the U.S. Department of Labor.

7. HR 2300 Empowering Patients First Act 2015.

8. Klein, Ezra, “Selling Insurance Across State Lines: A Terrible, No Good, Very Bad Health-Care Idea,” The Washington Post (Feb. 17, 2010).

9. National Association of Insurance Commissioners: The Center for Insurance Policy and Research, Interstate Health Insurance Sales: Myth vs. Reality, Washington, D.C.

10. Corlette (October 2012).

11. Bailey, James Benjamin, “The Effect of Health Insurance Benefit Mandates on Premiums,” Eastern Economic Journal, Vol. 40, No. 1 (March 2013).

12. Ibid.

13. Minnesota Department of Health: Health Economics Program, Mandated Health Insurance Benefits and Health Care Costs, St. Paul, MN (July 2001); see also Sobers, Robert, The Economic Effects of Mandated Health Insurance Benefits, The College of New Jersey (April 2003).

14. Since 2002, the California Health Benefits Review Program (CHBRP), housed at the University of California, has conducted independent analyses, based on requests from the state legislature, about the medical, fiscal and public health impacts of proposed specific benefit mandates and repeals. CHBRP’s reviews are intensive; it has conducted roughly 30 reviews on specific mandates over the past 3 years.

15. Minnesota Department of Health (July 2001).

16. Blumberg, Linda and John Holahan, “Don’t Let the Talking Points Fool You: It’s All About the Risk Pool,” Health Affairs (Mar. 15, 2016).

17.  Blumberg, Linda J., Does the Patient Protection and Affordable Care Act Permit the Purchase of Health Insurance Across State Lines?,The Robert Wood Johnson Foundation, Princeton, N.J. (Aug. 2010); see also Bertolone, Pauline, “The Trouble with Replacing Obamacare with High-Risk Health Pools,” Time (Nov. 22, 2016).

18. Corlette (October 2012).

19. Corlette (October 2012); see also Blumberg and Pollitz, Cross-State Risk Pooling (March 2010), which explains that a health insurer’s ability to provide attractive coverage at competitive prices in a particular geographic area is strongly associated with its ability to obtain discounts for a contracted network of healthcare providers. Insurers negotiate fee discounts with providers and may influence utilization of healthcare services by selectively contracting with the most efficient providers. In order to obtain significant discounts, the insurers must be able to demonstrate the ability to deliver the providers a significant share of the insured market.

20. Quincy, Lynn, What’s Behind the Door: Consumers Difficulties Selecting Health Insurance, Consumers Union, Washington, D.C. (January 2012).

21.Quincy, Lynn and Julie Silas, The Evidence Is Clear: Too Many Health Insurance Choices Can Impair, Not Help, Consumer Decision Making, Consumers Union, Washington, D.C. (November 2012).

22. Quincy (January 2012).