Commentary

One of the most dangerous campaign proposals for health care consumers: Interstate insurance sales

Heath care stock image: stethoscope on an American flagOver the course of the presidential race, controversial headlines have overshadowed the issue of health care in the public narrative. However, the health care discussion deserves more attention and substance. One proposal that has received little scrutiny in the press is the suggestion from some conservative candidates that insurance companies be allowed to sell health insurance plans across state lines.

Instead of having to be licensed and regulated in each state in which they sell plans, insurance companies would be allowed to seek licensure in one state of their choosing (presumably one with minimal requirements) and then sell insurance in other states, based on that single states’ approval. Proponents argue that interstate sales would increase competition and choice for consumers, in turn lowering administrative costs and premiums. However, available evidence suggests otherwise.

First of all, the proposal would not actually lower costs or increase competition. Proponents of the idea argue that allowing plans to navigate only the regulations of one state would make it easier for them to enter new markets. However, the primary barrier to entry into new markets is not red tape; insurance companies cite the difficulty of establishing competitive contracts with networks of health care providers as their chief obstacle to entering new markets.

Insurance companies actually already know that this idea doesn’t work; when bills to permit interstate insurance sales were introduced to Congress in the past, the insurance industry lobby did not support them. While Georgia, Maine, and Wyoming already allow interstate insurance sales, no companies have moved to begin selling across state lines.

On the other hand, if it was ever enacted, this proposal would certainly lead to a race to the bottom in terms of consumer protections and coverage standards among health plans. With interstate sales, states would set the regulatory bar as low as possible to attract insurance headquarters and jobs. Insurance companies would relocate to low-regulation states to offer cheap but less comprehensive plans. The states with the strongest consumer protections would see increasingly unbalanced risk pools, as their young and healthy residents would enroll in the less regulated, lower-premium plans. Middle-aged, elderly, and less healthy consumers would see increased premiums for plans with higher standards. Insurance plans would face a death spiral in which premiums and costs would soar to unsustainable levels, leaving them to join the race to the bottom, as they provide minimal coverage and protections. This race to the bottom would give most Americans less choice than they currently have under the ACA and increase coverage disparities back to pre-ACA levels.

What’s more, under this proposal, insurance companies would not be held accountable, and consumers would be at risk. State insurance regulators do not have power over plans sold in other states, nor do they have the resources to watch over other states. If consumers have any problems with their plans, they would have difficulty receiving help from state regulators in a state in which they do not reside.

Overall, the interstate insurance sales proposal would fail to increase competition and consumer choice, make insurance less available to those who need it most, and allow insurers to discriminate freely against vulnerable populations. While policymakers should improve upon the ACA, allowing insurers to compete across state lines is not the solution.

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