The Return of Proposals for Across State Lines Sale of Insurance: Still a Dumb Idea

It’s like Groundhog Day. Every 2-4 years, politicians propose to allow health insurance to be sold “across state lines,” promising that doing so will make coverage more affordable. The idea is included in the health reform proposals of three presidential candidates (and endorsed by four others), as well as in Affordable Care Act “repeal and replace” bills introduced in Congress.

The persistence of the notion that interstate sales will improve access and affordability of coverage is a bit of a mystery. It’s certainly not grounded in any empirical evidence. Quite the contrary. Two years ago, my colleagues and I, with support from the Robert Wood Johnson Foundation, published a study of policies in 6 states designed to encourage the cross-state sale of insurance. The bottom line? None of the across state lines policies address the true drivers of health insurance costs, nor do they adequately take into account the complexity of how insurance products are regulated and sold. Further, not a single state across state lines law resulted in an insurer entering a new market or the sale of a single new insurance product.

In light of the re-emergence of proposals to encourage health insurance to be sold across state lines, we thought it would be timely to share some of our findings from that study.

What would these proposals actually do?

Historically, health insurance has been regulated at the state level, resulting in variation in the rules and consumer protections that apply to insurance companies and products. Before enactment of the ACA, state benefit mandates, rating rules, and requirements to offer or continue coverage varied quite widely. Proponents of across state lines bills argue that this state-to-state variation in standards hinders the competitiveness of health insurance markets and limits the choices available to consumers.

Current proposals generally begin with an assumption that the entire ACA would be repealed, returning us to the pre-ACA variation that existed among states. The across state lines bills would authorize an out-of-state insurer to sell products in multiple states without complying with all of the different insurance laws in each of those states. In essence, these insurers would be allowed to bypass state regulatory processes (such as rate and form review), rating standards (such as prohibitions on health status or gender rating), and benefit mandates.

Proponents argue that this would help reduce the cost of coverage and allow insurers to design cheaper products. Critics, however, argue that across state lines policies lead to deregulation and a race to the bottom, in which insurers are allowed to choose as their primary state the one with the least burdensome regulations. Meanwhile, insurers operating under the rules of more protective states would attract a disproportionately unhealthy risk pool and face higher costs, making it difficult to compete with the out-of-state insurers. While some healthy people may indeed find lower-cost plans via out-of-state carriers, they will do so at the expense of people with pre-existing conditions or families in need of more comprehensive coverage.

Across state line proposals have been considered, but not enacted, at the federal level since 2005. But states have long had the authority to decide whether or not to allow sales across state lines.

What did our study find?

We identified a total of six states that have enacted a law to encourage cross-state sales: Georgia, Kentucky, Maine, Rhode Island, Washington and Wyoming. We analyzed the state laws and implementing guidance, and conducted interviews with state officials and insurance company executives. Here are a few of the things we learned:

  • The purpose of the state laws was generally to increase the availability and affordability of health insurance coverage.
  • The laws have been unsuccessful in meeting their stated purpose. State officials found significant roadblocks to implementing the policies, and no out-of-state insurers had entered the states’ markets because of the law.
  • These laws have been unsuccessful because of the localized nature of how health care is delivered. For example, all insurers, including out-of-state ones, must build a local network of providers. This has long been a significant barrier to market entry, and the across state lines proposals do nothing to remove it.

Although our findings are limited to the context of state legislation, the concerns are similar if across state lines legislation is enacted at the federal level. Indeed, a federal proposal would likely preempt many more state consumer protections, lead to a regulatory “race to the bottom,” and reduce access to coverage for people with pre-existing conditions. Worse, it poses these risks while failing to address the market barriers that actually exist to stifle competition – such as the cost of building a network. You can read our full study here.

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