President-elect Donald Trump has called for allowing health insurers to sell coverage across state lines to encourage competition and provide consumers with greater choice of individual plans. The proposal is part of Trump’s health care alternatives to Obamacare posted on his presidential transition website, and he talked about it frequently throughout the 2016 campaign.
"We have to get rid of the artificial lines around the states, where we stop insurance companies from coming in and competing," Trump said during the second presidential debate with Democrat Hillary Clinton in St. Louis in October.
The current system under Obamacare, in which every state and the District of Columbia establishes its own government-operated insurance market, “gives the insurance companies essentially monopolies,” Trump explained. "We want competition."
The 2010 Obamacare law carefully prescribes ground rules for insurers participating in the subsidized health insurance program, including a prohibition against taking into account a person’s pre-existing medical conditions before determining whether to accept an applicant. The insurers can only consider an applicant’s age and location in setting premium prices, and they are obliged to offer every applicant a basic menu of coverage and benefits.
Trump’s idea – echoed by House Speaker Paul Ryan (R-WI) and House Budget Chair Tom Price (R-GA), who has been nominated to be the next secretary of Health and Human Services -- is that by cutting through detailed regulations tied to state insurance regulations, insurance companies will be able to offer national plans with lower premiums and reduced administrative costs. That presumably would expand consumers’ choices as well as generate lower premiums and out-of-pocket costs.
In effect, insurance companies large and small could market their individual plans to consumers in any state as long as they are licensed in their home states and adhere to their home-state regulations.
But as The Wall Street Journal has reported, Trump’s interstate insurance marketing ideas are meeting resistance from state insurance regulators, the health insurance industry and independent health care analysts who say the approach has been tried before on a limited basis and is far from a panacea.
Edmund Haislmaier, a senior research fellow at the conservative Heritage Foundation, said that while interstate sales might carry regional benefits, “No one should be under the illusion you can dramatically lower the cost of insurance in Los Angeles if you buy an Arkansas policy.” Moreover, state insurance commissioner have long challenged the efficacy of the concept as more myth than reality.
“Some have suggested that allowing interstate sales of health insurance policies will make coverage more affordable and available,” the National Association of Insurance Commissioners said in a statement. “In reality, interstate sales of insurance will allow insurers to choose their regulator, the very dynamic that led to the financial collapse that has left millions of Americans without jobs. It would also make insurance less available, make insurers less accountable, and prevent regulators from assisting consumers in their states.”
The indictment of Trump’s approach, which has been endorsed by House Speaker Paul Ryan (R-WI) and other GOP lawmakers and governors, is four-fold.
First, state officials complain that federal legislation to authorize insurance sales across state lines would undercut the state’s traditional role in regulating the insurance industry. If an insurer licensed, say, in Indiana decided to offer its policies to consumers in Michigan or Wisconsin, it would be under no obligation to conform to the rules of Michigan or Wisconsin, provided it followed Indiana’s insurance regulations. In some ways, this would constitute even more invasive government big-footing by the federal government than the current law the Republicans want to get rid of.
Second, critics warn that as insurers invariably flock to states with the most limited requirements and standards, the result would be for insurance companies to offer consumers cheap policies but often without some of the most basic health care and prescription drug coverage. The National Association of Insurance Commissioners argue that “interstate sales will start a race to the bottom by allowing companies to choose their regulators.”
The state commissioners say that allowing insurers to pick and choose among markets in which to sell coverage is tantamount to allowing banks to choose their own regulators, a surefire way to create a financial crisis. Insurance companies would seek the state regulations “that allow them to most aggressively select the healthiest risk,” resulting in a situation in which the healthiest, youngest policy holders pay the least expensive premiums while older, sicker people would be confronted with steep premiums – provided they could find coverage at all.
Third, while some major health insurers already have experimented in recent years in selling coverage across the country, they nonetheless have had to meet state regulatory requirements. If insurers were free to sell their policies in states where they were unlicensed, the possibility of cheating, fraud or other irregularities would be substantially increased.
Finally – and perhaps most importantly – insurance premiums are closely linked to underlying health care costs, such as rate levels paid to local or regional doctors and hospitals and the projected health needs of the policy holders. In order to sell an insurance policy in a particular state, the insurer would have to have a local network of allied doctors, hospitals and other health care providers in order to make the system financially feasible.
The liberal-leaning Center on Budget and Policy Priorities said in an analysis of the GOP health care proposals released Monday that, “The few states that tried to open their markets to out-of-state insurers prior to health care reform generally had little to show for it, as insurers had problems establishing networks of providers outside their own states.”
However, if insurers did succeed in entering other state’s markets, “the out-of-state plans would likely attract healthier-than-average people with low health care costs, because such people have much less need for consumer protections such as requirements to cover certain benefits or limits on insurers’ ability to charge higher premiums based on age or gender,” wrote Judith Solomon, an analyst with the non-partisan research organization.”
Consequentially, the study said, those who remain in the plans offered by the in-state insurers would become less healthy as a group, and their premiums would rise accordingly.