The Debate Over Selling Insurance Across State Lines
By Phil
Galewitz
KHN Staff Writer
Feb 03, 2010
With health care legislation stalled, Republicans are touting their own
remedies, including allowing Americans to buy health coverage across state
lines. Currently, consumers can buy policies only from insurers licensed by the
states in which they live.
The Republican
idea has actually been incorporated into the Democrats' House and
Senate health bills, though in a somewhat different form. And it's expected to
be included in any legislation that wins final passage.
Congressional
Republicans have proposed the concept in the past and Sen. John McCain, R-Ariz.,
embraced it as part of his 2008 presidential campaign. Advocates - including
some insurers and small business groups - say it would give the more than 17
million Americans who buy individual coverage a greater choice of plans and the
possibility of lower prices. (The measure does not apply to the 159 million non-elderly
Americans who obtain insurance through their employers.)
But critics --
including consumer watchdog groups and the National Association of Insurance
Commissioners -- say the provision would erode many state government consumer
protections, leave policyholders with inadequate coverage and could actually
lead to higher premiums for some people.
Here is a short primer on the
issue:
What currently restricts insurers from selling policies
outside of their home states?
States have primary regulatory
authority over insurance. As a result, insurers are allowed to sell policies
only in states where they are licensed to do business. Most insurers obtain
licenses in multiple states. States have different laws regulating benefits,
consumer protections and financial and solvency requirements.
How do the health overhaul bills approved by the House and
Senate handle the issue of selling insurance across state lines?
The House would allow states to form health care "compacts" in
which one state would allow their residents to buy coverage from an insurer
based in another state. The states would determine which states' law applies to
coverage sold through the compacts.
The Senate bill also allows states
to form "compacts." But it would require that the coverage would be governed by
the laws of the state in which the policies are "issued or written."
The
Senate bill also would allow at least two insurers (one being a nonprofit) to
sell multi-state plans in any state. The multi-state plans, which would provide
coverage in the individual and small employer markets, would be supervised by
the Office of Personnel Management, which oversees health benefits to federal
employees. Under the legislation, the federal government would determine the
minimum benefits the multi-state plans would offer. As a result, the minimum
benefits could be more or less extensive than exist in some states. States could
add more requirements to the plans though the states would have to bear the
costs.
Why are Republicans critical of how Democrats handle the
issue?
They say its redundant for states to have to pass laws
to allow their residents to buy coverage from other states. And they don't like
the idea of having the federal government set minimum standards. "In reality,
(their) bill nationalizes federal insurance regulation and gives the average
American family no relief from expensive mandates that drive up the cost of
health insurance," said Rep. John Shadegg, R-Ariz. said.
What do
advocates say are the main advantages of allowing insurers to sell across state
lines?
The individual health insurance market is dominated in
many states by just a handful of companies, so this provision would allow
consumers to shop broadly for cheaper policies, supporters say. "You want to
have greater competition in the insurance market and this does that," said
Douglas Holtz-Eakin, a fellow at the Manhattan Institute and top health adviser
to McCain during his presidential campaign.
Republicans says consumers
may be able to buy less expensive policies in other states because of variations
in laws and regulations. While some states may require insurers to pay for a
particular treatment of autism, for example, others don't. Insurers bristle at
many of these mandates.
"This is absolutely a way to get around some of
those state-mandated benefit laws that are counterproductive and drive up
insurance costs," said Merrill Matthews Jr., executive director of the Council
for Affordable Health Insurance, which represents companies selling individual
health insurance.
Why is there skepticism about the
concept?
"It always sounds appealing to offer more choice,"
said Kenneth Thorpe, an Emory University health policy expert and a health
official in the Clinton administration. "But if you do look at it more closely,
it does raise issues of regulation."
If insurers can sell beyond state
lines, the concern is that consumers would be attracted to the least
comprehensive policies because they'd be cheapest. For example, someone could
buy a policy in a state that doesn't mandate coverage of diabetic supplies. "You
get what you pay for in these policies (and) consumers won't realize it until
they are sick and it's too late," said Jerry Flanagan, health care policy
analyst for Consumer Watchdog, a California consumer health group.
There
are also fears that consumers dealing with out-of-state companies would have
difficulties resolving disputes, and that insurers selling across state lines
would market policies to younger, healthier individuals. Older and sicker
individuals would face ever-rising rates - or face being turned down - because
their insurers would have fewer healthy people to spread risk. And, since health
costs vary geographically, insurance purchased in one state might not cover as
much of the cost of care in a more expensive state.
Finally, critics say
that selling insurance across state lines might not save much money, and point
to a 2005 CBO report that says:
"if only those benefit mandates imposed by the states with the lowest-cost
mandates were in effect in all states, the price of individual health insurance
would be reduced by about 5 percent, on average."
This is an updated version of a story that was originally published Nov.
6, 2009.