Selling Insurance Across State Lines: A Good Idea?

The idea isn’t a new one: let people save money by purchasing insurance coverage from another state, where policies might be cheaper.
The concept of allowing the sale of insurance across state lines has been around for at least 10 years. It’s regained traction recently as several Republican presidential candidates have expressed support for the idea.
Three states already allow the sale of insurance across state lines: Georgia, Maine, and Wyoming. The Affordable Care Act allows for it too, as long as all states agree.
However, not a single insurance company has offered to sell a product approved in one state to consumers in another.
Kaiser Health News recently explored the idea in this video and found that increasing competition among health insurers by allowing sales of policies across state lines might not be such a great idea after all.

In today’s post, we talk with Vituity payer contracting experts Douglas Brosnan, M.D., and Bing Pao, M.D., who share their perspectives on the issue.
Perspectives: If the idea of selling insurance across state lines has been around so long and many people seem excited about the idea, why hasn’t it happened yet?
Brosnan: There are many reasons why it would be difficult, if not impossible, to sell insurance across state lines. The largest hurdle is probably the network. Health plans contract with hospitals, doctors, pharmacies, and other healthcare service providers. It’s difficult enough to establish a comprehensive network to service the broad needs of enrollees within a single state, let alone try to do that in a state far away from the insurer’s home base.
There are regulatory hurdles as well. For example, if California allowed insurance companies from other states to sell inside of California, who has the authority to regulate that plan? Is it California’s Department of Insurance or Department of Managed Care, or would it be an out-of-state regulator who is not accountable to the citizens of California? How do we manage that? What does it look like?
Pao: The other issue is that there are differences across states with respect to required covered benefits for health plans. For example, mental health coverage may not be required by regulators from certain states. The Affordable Care Act has mandated minimum benefits requirements, so there is less variation across states than there used to be, but it is still a concern. What could happen is that you could potentially have plans that are less expensive because they’re bare bones plans. You’d be subverting legislators’ intent to have their state’s residents have certain health needs covered.
Perspectives: Are there any other policy perspectives to consider?
Brosnan: We can draw some lessons from the banking industry. Fifteen or 20 years ago, banks were not allowed to operate across state lines. When that changed, we saw massive consolidation in the banking industry. The larger banks entered a state and crowded out the smaller independent banks. So I’m not convinced that allowing states to sell their insurance products across state lines would improve competition. It might actually further drive consolidation by having the big health insurance players take over.
Perspectives: Can you give any examples of how competition drove down insurance premiums in other countries?
Pao: I think our country is unique. Most countries have a government-funded healthcare system and also private insurance for those who want to purchase it, so there is not a lot of competition. We’re the only country that has a very bureaucratic system of administering health insurance coverage through a variety of different health plans. There is evidence that shows when health plans consolidate, premiums go up. So competition likely reduces premiums by health plans.
Brosnan: We are outliers among developed nations in terms of how we fund healthcare. Other western and industrialized countries consider healthcare almost as a benefit of being a member of that country. They essentially offer Medicare for all, and then they sell Medicare supplemental plans so that you can obtain additional coverage or services that may not be included in the basic government plan. That is why I pointed to the banking industry earlier. It has many parallels to this form of deregulation.
Perspectives: The goal behind the concept of selling insurance across state lines is to make healthcare more affordable. How else can this be accomplished?
Pao: The Affordable Care Act has brought about alternative payment models that shift the emphasis away from traditional volume-based, fee-for-service care. The federal government now offers financial incentives to providers for meeting or exceeding certain pre-established performance metrics.
We’re also moving toward other payment models such as bundled payments where there is a single payment for a service like a joint replacement. The bundled payments encourage healthcare providers to be more cost efficient. Capitation is another payment model where the healthcare providers assume the responsibility for providing healthcare services based on a fixed amount of payment per member. Essentially, it is like joining a health club, where you pay your membership dues and then you use the club as much as you want. Those are a couple of solutions to the very complex issue of controlling healthcare costs.
Brosnan: Another idea under discussion in the political sphere is allowing people over age 50 to “buy in” to Medicare before they reach age 65. This has both positive and negative implications. A benefit is that it brings us closer toward the idea of Medicare for all, because it closes the gap by 10 or 15 years.
On the downside, as the Medicare and Medicaid markets expand, the commercial market shrinks. This would ultimately squeeze hospitals' and physicians' margins, because they are still providing uncompensated and under-compensated care for Medicaid enrollees. That is the challenge I see of a Medicare-for-all approach.
Perspectives: Is a national network possible?
Pao: Although creating a national network is possible, many health plans try to create a narrow network to contain costs. With narrow networks, oftentimes patients wind up having to go out-of-network to get their healthcare. Health plans do this because it is more profitable to place greater financial responsibility on the patient when they go out of network. Enrollees have to pay more for healthcare.
Brosnan: The challenge is that there aren’t enforceable minimum network adequacy requirements. So Dr. Pao is absolutely right. The fewer providers a health plan has inside of its network, the more enrollees have to use their out-of-network benefit, which usually means the coinsurance portion is much higher.
Even in a world where you could envision our government selling insurance plans nationally, the prospect of creating a national network across 50 states would be virtually impossible to achieve. How many physician groups, hospital systems, and pharmacies have a national presence?
Perspectives: How could selling insurance across state lines hurt coverage?
Brosnan: It raises a lot of questions. If you go to a state for health coverage that doesn’t really have any other minimum coverage requirements beyond what the ACA dictates, then that coverage will be less expensive. For example, if you allowed residents in New York, where there is a lot of regulation, to buy policies from states like Utah or South Dakota, where there’s much less regulation, that puts pressure on the New York legislature to remove those minimum coverage requirements in order to prevent insurance companies from relocating to another state. That creates a race to the bottom.
Perspectives: Why do some states have a higher level of minimum coverage requirements?
Brosnan: There are many reasons these requirements are in place. From an altruistic standpoint, the minimum coverage requirements are there because the legislature has determined that if you take care of certain problems up front, they will cost the state less down the line. For example, if you give a child intensive therapy when they’re first diagnosed on the autism spectrum, they'll often need fewer services later in life. That initial investment in care pays off for the child, the family, and the state.
So, there are many reasons why the state might want certain coverage, and there are many reasons why insurance companies might relocate to a state that doesn’t have those requirements. This could change as payment models and incentives evolve. But for now, most insurance companies are looking to optimize profits this quarter rather than taking a longer view.