How much would it matter if we deregulated health insurance across state lines?

From Sarah Kliff:

Allowing insurance sales across state lines comes up perennially as a way to drive down the cost of health care.

Conservatives argue that allowing a plan from a state with relatively few benefit mandates – say, Wyoming – to sell its package in a mandate-heavy state (like New York) would give consumers access to options that are more affordable than what they get now.

Liberals tend to argue this is a bad idea, contending that it would create a “race to the bottom,” where insurers compete to offer the skimpiest benefit packages.

A new paper from Georgetown University researchers suggests a third possible outcome: Absolutely nothing at all will happen. They looked at the three states – Maine, Georgia and Wyoming – that have passed laws allowing insurers from other states to participate in their markets. All have done so within the past two years.

So far, none of the three have seen out-of-state carriers come into their market or express interest in doing so. It seems to have nothing to do with state benefit mandates, and everything to do with the big challenge of setting up a network of providers that new subscribers could see.

“The number one barrier is really building that provider network that’s attractive enough to get patients to sign up,” said lead study author Sabrina Corlette. “To do that, you have to offer providers attractive reimbursement rates, which makes it difficult to get them in network.”

Corlette and her colleagues talked to insurers and regulators in all three states. And they heard this barrier come up again and again: Entering a new state is really difficult, whether there are benefit mandates or not. “We kept hearing about the cost of building a provider network that’s strong enough to market,” she said.


This is the key point from the consumer's perspective. Usually the main choice in selecting a provider is whether he/she is in plan so that one will not have to file a claim. If the out of state provider cannot fulfill this, they will not succeed. Pretty simple explanation though I think lying underneath all of this is what recourse the customer will have if something goes wrong with the insurer. As a Maryland resident, I wouldn't want to have take on my provider with another state's insurance regulator; it would be too difficult to get redress.

+1. State insurance commissioners and their consumer staffs intervene in policy or claim disputes for their citizens.

Ask yourself: will a state like Texas, South Dakota, or Delaware intervene with the carrier on your behalf if you live in California and purchased a policy from a state which compted to land insure prance plans to be headquartered in their state.

There is a solution, however, and that is a national insurance policy regulated by a federal regulator.

So we have three states that have passed this in the last two years (which coincided with the passing of Obamacare) and they think that these results are significant? Who wants to build a network that could be blown up in the near future?

Let's see what happens after Mitt repeals this monstrosity. We have to repeal it to kill what's in it.

How's Mitt going to do that from his new office at Bain? Because he's not likely to get elected president.

Not sure what you're talking about, because the state insurance market is alive and well. And it is still--and will be--primarily regulated at the state level. In fact, private insurance offered on a state by state basis is about to expand.

Obamacare is not being repealed. Not even under a President Romney, and certainly not under any other president that follows him, once coverage is extended to 30+ million people. Go, Mitt, Go!!!

Do these states allow insurers to offer both in-state and out-of-state plans? Some large, national carriers would have in-state networks.

Another issue is the level of the in-state mandates. A state like New York has many and therefore has high insurance premiums, but it seems unlikely that a state with high premiums due to mandates would allow out-of-state plans. The fact that these three states allow this suggests they aren't as burdensome on in-state insurers and there's little to gain.

Call me skeptical of the results. Healthcare markets aren't exactly on strong footing right now. Who wants to expand when the market could be altered significantly by the PPACA.

Also, they looked at three isolated states. One wonders if barriers lower when all states can enter all other markets. It seems odd that health insurance would be the only service industry that couldn't enter a new market.

And if creating provider networks is so hard, how do you make that easier?

This is a part of the pseudo-conservative sloganeering campaign.

I;m a conservative, and I don't see any significant impact.

The WP article is biased and the GU study is junk. These three laws are all designed to fail just so that the current insurers can keep their current monopoly while saying “look we tried but it just doesn't work.” Here’s what it really says.


"The DOI must approve individual health insurance products if they are approved for sale in another state, so long as the insurance company is licensed in Georgia.”, “All products, even those approved for sale in another state, must be filed with the DOI."

All I have to do to start selling insurance in Georgia is set up an insurance company in Georgia? That’s great if the only thing keeping you from selling insurance in Georgia in the first place was your address. You might as well have an office there and avoid the other additional requirements.

Maine (whose law doesn't even take effect until 2014!)

This is the only state where a person not associated with the GU study is quoted and what does he say?

"A regional insurer, based in Massachusetts, reported that the company is “always looking at expansion opportunities” in New England, but is not considering Maine because of difficulties in establishing a provider network in the state, which was referred to as a “very challenging environment.” According to the insurer, the main challenge is that “the delivery system is locked up and [we] can’t make a deal [on provider reimbursement].”

If this doesn't scream regulatory capture I don’t know what does. I don’t know why “the delivery system is locked up” but it doesn't sound like a place I would expand into either.


"Insurers must hold a license in Wyoming"

Not exactly across state lines, is it?

"The commissioner may subject out-of-state carriers to certain specified requirements ... submission to financial examinations; ... unfair claims settlement practices, external review requirements..."

What’s your reward for jumping through all of these hoops?

"The commissioner may suspend or revoke the sale of out-of-state policies, if the laws of the state in which the sponsoring company is domiciled are determined to “egregiously harm” Wyoming residents."

The commissioner can blacklist you whenever he wants. Is that a business environment you would consider investing millions of dollars into?

Selling insurance across state lines is an idea that would work if it was ever truly implemented but I doubt it is possible politically. There are too many people who stand to lose too much to ever make it feasible.

So, you don't like out of state insurers complying with laws profiting unfair claim and settlement practices as in Wyoming.

It should be a regulatory barrier for the dishonest.

It's not just for unfair claims settlement, it's for "unfair" claims settlement. My experience with it, while not in Wyoming, has been that the government uses it as a club against both the insurance companies and doctors. The government gets to decide what's fair and usually decides in its own favor. Do you have a real argument or do you just want to continue to pick nits?

Depends who you have more trust in, your insurance carrier or your insurance regulator .

Let me guess. You trust the insurance company in a dispute with your insurance company over an unreasonable denial of claim.

The commissioner can blacklist you whenever he wants. Is that a business environment you would consider investing millions of dollars into?

No he almost certainly cannot. If a commissioner suspended an insurance plan because, say, the domestic company gave big money to the governor's relection campaign his deicsion would almost immediately get reversed in court. As for 'hoops' like having an insurance license, having a single office in the state....look this is a product that can easily cost nearly $1,000 per month per person. Even a very modest company that has a modest amount of patients will be taking in tens of millions of dollars and have to pay out millions in claims to doctors, hospitals and other HCPs in the state. The idea that they are going to leave profits on the table because they can't afford to rent a small office building is pretty far fetched.

The reason you don't see as much state line crossing is probably less about regulation and more about geographical factors. If you want to do health insurance in, say, Alaska, you not only have to get people from Alaska to spend a lot of money on your product, you also need to get a lot of doctors to take your insurance in Alaska (you think your insurance plan will sell much if the only doctors 'in network' are from NJ?). This probably requires a real ground presence in the state and a real familiarity with how business is done there.

Those results in cross-state markets occur because:

The contracts are not basically insurance (risk spreading);

They have become services contracts (cost spreading).

Oligopoly is more appealing than a race to the bottom. Who knew? (oh, right, everyone)

There really isn't any limitation on networks expanding to other states. Yes, they would have to comply with the regulations of that state, but that is minor compared to managing a network of providers and claimants in the first place, so no one should expect increased competition and lower costs from this. I am sure the incentive for providers to work with out of state insurers is not even zero. The regulations are as much if not more for the benefit of providers as the public. This is one of those cases where conservatives opine that if only government, regulation, and taxes, get out of the way the market will blossom when the truth is it was never an obstacle in the first place.

"There really isn’t any limitation on networks expanding to other states."

What do you base this on? In my experience there are. You have to establish an office and then have months or years of paperwork and approvals before you can even legally solicit a provider.

How big are the mandated coverage differences between Wyoming, Georgia, and Maine? I think it's entirely possible that it's not worth the hassle to sell across state lines if the regulatory regimes (and by extension, the premiums) are basically comparable but it could be worth the rather substantial hassle to set up a provider network, etc, if it lets you sell catastrophic-only coverage to consumers in a state that requires its local insurers to provide acupuncture coverage and mental health parity.

In other words, let's see what happens a few years in after consumers in New Jersey or New York are allowed to buy insurance from Wyoming and then we'll talk. (Or it could be that there is in fact a substantial difference in coverage mandates between WY, GA, and ME).

I think that allowing insurance sales across state lines would, as stated in the original post, create a race to the bottom where the insurance companies would end up staying competitive by creating packages that are light on benefits. However I don’t see this as a bad thing. If these packages are cheaper, it also means that a larger percentage of Americans could afford health assurance.
I also don’t see how three of the fifty states over only a two year period could be used as evidence that the possible outcome of this sort of deregulation is “absolutely nothing will happen”. Just because none of the three states have seen out of state carriers in their markets doesn’t mean that it won’t happen. It is claimed that getting providers is too difficult and not affordable. However if this initial cost could be overcome, the large base of lower-income could eventually compensate for that and the market for out of state carriers would be bountiful.

I believe that allowing insurance companies to spread their programs across state lines would be dangerous in that it could quickly lead to a large monopoly. Though, the more liberal viewpoint is also valid here, in that the competition would be so intense between companies in trying to achieve that monopoly, that they would all offer very cheap but simultaneously very ineffective health care packages that would do little other than flood the consumer with a lot of options that they might not need. The Georgetown University researchers survey doesn't seem particularly valid to me, as three states is hardly a large enough sample. The states could all have similar mandates and are too far spread to offer good network coverage as far as available doctors are concerned. Until such a time that an out-of-state plan can be thoroughly tested with a large health care provider base, I think the economic benefits or losses cannot be effectively proven or dismissed.

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I agree with the study. Nothing will happen but the new options will muddy the waters and make it even harder to choose companies...

We have seen this in NJ. A new company will want to make a presence in our state so they must start by forming a network of participating doctors. This is alot of work so they lease another network like Aetna or Amerihealth...the new company agrees to pay the same fees to these doctors as any other plan who has also bought into the network. This makes it even harder for them to offer any significant savings to NJ residents.

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