Interstate Health Insurance: Sounds Good, But Details Are Tricky
January 18, 2017
By Michael Ollove, Stateline
President-elect Donald Trump has repeatedly pledged to allow health insurers to sell policies across state lines to spur competition and lower premiums.
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On his campaign website, Trump proclaimed that, "by allowing full competition in this market, insurance costs will go down and consumer satisfaction will go up." He also touted the idea during the second presidential debate, and since the election, Vice President-elect Mike Pence has made the same argument.
The implication is that federal law prevents insurers from selling policies across state lines. That isn’t the case.
Between 2008 and 2012, five states — Georgia, Kentucky, Maine, Rhode Island and Wyoming — passed laws specifically allowing out-of-state insurers not licensed in their states to sell health insurance policies within their borders.
Nevertheless, no insurers have taken advantage of the laws. That’s because entering an unfamiliar territory and creating a network of medical providers is exceedingly difficult and expensive, health policy analysts say.
But many health insurance analysts say that even if insurers were able to build provider networks in new states, it's not a good idea. The cross-state sale of health insurance would undermine the states’ ability to regulate insurance, they warn, destabilizing their insurance markets and driving up premiums.
"It sounds great in a campaign to say we're going to get rid of the lines," said Gerald Kominski, director of the UCLA Center for Health Policy Research. "But what they’re really saying is we’re going to get rid of state regulations and consumer protections."
All states license the insurers selling policies within their borders and regulate the health plans sold there. Each state has its own rules on the benefits insurers operating in their state must offer, the extent to which insurers can charge different premiums to older customers, and the financial assets insurers must maintain in order to do business in the state. The five states that have moved to encourage cross-border sales have indicated a willingness to set aside some of their own regulations.
Some larger insurers, such as Aetna, do sell policies in multiple states, but any company that does so must be licensed in every state where it operates, and must comply with each state’s laws. (This isn’t the case with “self-insured” employer-based plans that operate in multiple states, or plans in which the employer assumes the financial risk of providing health care benefits to its employees instead of paying a fixed premium to an insurer.)
And an insurer breaking into a new state likely would have to pay providers higher than prevailing rates to lure them into joining a new network.
"It takes a huge investment to get established in the health insurance market," said Deborah Chollet, a senior fellow at the policy research organization Mathematica Policy Research. "Outsiders would have a hard time getting a foothold."
With cross-state sales, insurers would be subject to the regulations in the state where they choose to base their operations. Critics say the proposal would encourage insurers to locate in lightly regulated states, but sell their policies nationwide.
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