commentary & opinion

Selling Health Insurance Across State Lines Is Unlikely to Lower Costs or Improve Choice

Insurers can already sell insurance across state lines and so far it hasn’t lower costs or improved care

by Sabrina Corlette and Kevin Lucia

New research from The Commonwealth Fund’s ‘To The Point.’ Reprinted with permission. Visit here.

April 11, 2017 — In the wake of the failure of the legislative effort to repeal and replace the Affordable Care Act (ACA), the fate of another of the president’s health care priorities is unclear.

In his first congressional address, President Trump articulated five principles for health care reform. His fifth and last called for giving “Americans the freedom to purchase health insurance across state lines,” a reform that, in his words, would create “a truly competitive national marketplace that will bring cost way down and provide far better care.”

This concept was not in the House reconciliation bill (the “American Health Care Act” or AHCA) to repeal and replace key provisions of the ACA, but President Trump may be able to use his regulatory authority to promote the cross-border sales of health insurance.

The president has the authority to act on his own thanks in part to the ACA. That law includes a provision encouraging “health care choice compacts,” whereby an insurer could establish itself in one state and sell health insurance to consumers in multiple other states without having to follow those states’ laws and regulations. However, under President Obama, the U.S. Department of Health and Human Services (HHS) never published regulations enabling these cross-state sales.

While the ACA provision encourages states to enter into cross-state regulatory agreements in order to facilitate interstate sales, under Trump’s campaign and several congressional proposals, the federal government would effectively override states’ authority to regulate their markets. In the absence of legislative action, there is nothing preventing HHS Secretary Tom Price from issuing the required regulations and working with states to develop standards for interstate sales. In fact, several states already allow cross-state sales.

The Theory Behind Policies to Allow the Sale of Insurance “Across State Lines”

Health insurance has traditionally been regulated by states, which, until the ACA established a set of essential health benefits and other minimum consumer protections, meant that there was significant state variation in the rules governing insurance companies and the health plans that they sell. Some states have had numerous requirements mandating coverage of certain benefits, such as autism treatment, diabetes screening, or mammograms, while others have taken a hands-off approach to benefit design. Similarly, before the ACA prohibited charging women or people with preexisting conditions more for their coverage, some states limited insurers’ flexibility in setting premiums based on characteristics of enrollees while others did not.

The concept of selling insurance across state lines, which dates back to the 1990s, was borne out of frustration with the variation in state regulation.

The concept of selling insurance across state lines, which dates back to the 1990s, was borne out of frustration with the variation in state regulation. Proponents contend that if an insurance company were allowed to operate by the rules of just one state but sell plans in multiple states, they could lower the price of their plans, giving consumers new and more affordable choices.

When Theory Collides with Reality

While the frustration with the costs of our current health care system is well-founded, proposals to allow cross-state sales will do nothing to encourage greater competition or address the underlying drivers of health care costs. Just like politics, health insurance is local. Today’s health plans essentially provide enrollees with access to a local network of doctors and hospitals at a discounted price. According to many insurance experts, the primary barrier for an insurer looking to enter a new market is not the state’s regulations, it’s the cost of building up a provider network at discounted prices.

To date, six states have enacted laws to allow cross-state sales: Georgia, Kentucky, Maine, Rhode Island, Washington, and Wyoming. Yet none of these states has had a single new insurer enter its market because of its law. When asked about their laws, state officials and insurance industry experts in those states agreed that establishing a competitive provider network is the primary barrier to new market entrants. They also observed that the sheer complexity of how insurance products are developed, priced, and regulated makes it difficult to establish a single cross-state framework for consumer protection.

At the same time, there is a significant risk that if the ACA’s insurance reforms are repealed, and Congress enacts legislation to mandate cross-state sales, it could lead to adverse selection in many states. Without a federal minimum standard of protections, some multi-state insurers with national or regional networks could take advantage of the exemption from a state’s standards for benefit design, premium rating, and other consumer protections. This would enable them to attract younger and healthier enrollees than local insurers who must comply with their state’s laws. This, in turn, could threaten the long-term viability of local insurers, increase premiums, and reduce consumers’ choices.

Looking Ahead

Across-state-lines legislation pending in Congress would effectively force states to allow interstate sales. However, if President Trump wishes to fulfill his campaign promise to encourage health insurance to be sold across state lines, he need look no further than current law and his own HHS Secretary. He is likely to find—as six states have already found—that cross-state sales will do nothing to improve consumers’ choices or lower premiums.