The Difference In Selling Insurance Across State Lines

Our guest blogger is Emma Sandoe, a Health Care Researcher at the Center for American Progress Action Fund.

Rep. John Shadegg (R-AZ)

Rep. John Shadegg (R-AZ)

As Democratic and Republican leaders make their final preparations for the February 25th bipartisan health summit, Republicans continue to argue for selling insurance policies across state lines — a provision already in both the House and Senate bills.

This weekend David Herszenhorn of the New York Times noted that while Republicans and Democrats may agree on the idea of selling across state lines, their respective paths to accomplishing this goal couldn’t be more different. Some experts argue, if done incorrectly this could become “a race to the bottom.”

Republicans argue the current insurance system, in which each state has its own set of regulations, restricts competition in the marketplace with the added barrier of 50 different sets of insurance regulations. Their proposal allows the health insurer to self-designate a “primary state” “whose covered laws shall govern the health insurance issuer” and avoids regulations in other states by allowing insurers to market policies without adhering “to all of the consumer protection laws or restrictions on rate changes of the state.” U.S. territories such as the Virgin Islands, Guam, American Samoa and the Northern Marianas were given the title of “states” in the Republican bill under the definition of a “primary state.” This could lead to insurers finding sanctuary in less regulated havens.

Despite claims that selling policies across state lines would serve to expand insurance options and lower costs to consumers, the Congressional Budget Office found older and sicker individuals who continue to purchase in-state expanded coverage plans would likely pay more under the Republican proposal. The ability to sell across state lines coupled with meager benefit standards induces insurers to cover fewer benefits and move their operations to states, or territories, with the least regulation.

Rep. John Shadegg (R-AZ), a long time proponent of selling across state lines, argued, “if you turn on the television station at night…you see Allstate and Geico and Progressive and State Farm pounding each other’s heads in…You never see that kind of advertisement for you and I to go out and buy health insurance.” While more competition is needed in the health insurance market, a desire for greater competition should not put benefit standards at risk. Transparent and accessible information on policies, the health insurance exchange, and enforceable fair practices in the health insurance market will go a long way to increase competition without reducing benefits under comprehensive reform.

The House and Senate bills, meanwhile, provide for more regulated “compacts” to “facilitate the purchase of individual health insurance coverage across State lines.” The House bill allows residents of one state to buy health coverage from another state and the laws applied would be determined between the states. The Senate bill also allows states to enter “compacts” with other states, but rather than negotiate which laws would apply, the laws from the original state where the policy is issued or written would govern the policy.

Theoretically the plans sold under the Office of Personnel Management would also achieve the goals of selling policies across state lines, although the Congressional Budget Office cast doubts on the chances insurers would participate.