With the passage of the Affordable Care Act (known as Obamacare), there was an expectation that the new structures implemented for healthcare access would help to reduce the cost of premiums and services for patients. Unfortunately, the legislation did not produce the results that everyone wanted. Health spending is expected to rise an average of 6% each year through the next decade unless another intervention effort occurs.
One of the suggested proposals comes from the Republican side of the aisle. They have proposals which would allow insurers to sell policies across state lines. The goal of such an action would be to bend the cost curve in favor of the patient to ensure that premiums are more affordable.
It is an idea that seems simple enough to implement. Everyone in the United States right now purchases health insurance from an insurer which is regulated by your home state. Instead of offering a national market, there are 51 individual markets that the industry regulates – including Washington, D.C., as its own market.
The pros and cons of selling health insurance across state lines could increase competition, but it could also cause costs to spike as well. This guide goes through some of the crucial points on both sides of the debate.
List of the Pros of Health Insurance Across State Lines
1. Consumers would have more options available to them.
Under the current system of healthcare insurance, an individual who does not receive this benefit from their employer may have one federally-sponsored option available to them in their county of residence. When there are fewer choices available, then it is almost impossible to have that one plan meet your every need. By allowing insurance companies to sell their policies across state lines, then it would be more likely that someone could find a better plan that is best suited to their unique needs.
“You shouldn’t limit people to products in the states where they live or make them move to get the insurance they want,” says Tom Miller of the American Enterprise Institute. Allowing health insurance to be sold across state lines would provide this benefit.
2. It would offer more service opportunities to local providers.
There are some benefits which are mandated in some states that are not necessary in others. If you include the costs of acupuncture or drug rehabilitation into the cost of a health insurance plan, then the price of the policy can go up by more than 50%. When someone can access a policy that is sold across state lines, then they can receive the services they need without paying for the ones they want.
This benefit creates two advantages. Consumers will get to dictate what they find to be useful with their health insurance, and this structure can provide extra resources to medical providers that may not see as much attention if their state doesn’t mandate services.
3. Selling health insurance across state lines would create more competition.
If the United States allowed health insurance companies to sell policies across state lines, then the increase in competition in this market would naturally work to reduce prices for consumers. Estimates suggest that up to 1 million people would leave their employer-sponsored health insurance if all 50 states allowed for cross-border selling because they could find less expensive or more comprehensive plans somewhere else. The movement of consumers to different policies would then create downward momentum on the premiums to reduce costs for the average consumer.
4. It would give small businesses more options to give their employees.
One of the most significant advantages of selling health insurance across state lines is that it would give small businesses more options to provide employer-sponsored benefits. As with the individual market, this idea would work to lessen the inequalities that exist between the small and large employers in each market because there would be fewer issues of scale with which to contend. That would make it truly more affordably to provide insurance options because it would be the national market, not the state one, directing the traffic toward each wanted benefit.
5. This idea would give patients more control over their care options.
“The examples of the patient-centered reforms that would lower costs are to couple individually-owned health savings accounts with true, catastrophic medical insurance that would cover serious illness and hospitalizations,” said Dr. Elizabet Lee Vliet, former director of the Association of American Physicians and Surgeons. “That would then be a policy with a high deductible where patients use their HSAs to cover the cost up to the deductible. That allows lower premiums for the health insurance.”
By having more choices available to them across state lines, patients could choose the catastrophic or comprehensive healthcare policies that they feel are the best option for themselves and their families. That would give them meaningful options that would help them to spend less money per month.
List of the Cons of Health Insurance Across State Lines
1. It would take several years for the benefits of this process to take effect.
Although the laws of supply and demand would likely lower the costs of health insurance eventually in the United States if policies could be sold across state lines, it would take several years for this process to become beneficial. Out-of-state insurers would need time to create networks that were large enough to impact the average premiums charged in each state. Downward momentum on the cost of a policy wouldn’t happen until national providers had a large enough of the market to exert this pressure.
There is also the risk that the health insurance industry could turn into an oligopoly that would cause premiums to continue rising anyway.
2. This idea would work most effectively in states with dense populations near their borders.
Although there are benefits to consider for every community when selling health insurance across state lines, the regions that would benefit the most are those which have major cities near a state border. There would be up to a 49% increase in health coverage across the United States if Maryland, Virginia, and Washington, D.C. along with New York, New Jersey, and Pennsylvania could create markets – and those figures are based on 2012 estimates.
The rural states of the West would struggle to find benefits since there would be few opportunities to share. The Dakotas, Wyoming, and Nevada would likely find that the disadvantages of this idea would likely outweigh the potential benefits that are possible.
3. It could cause some states to remove basic consumer protections.
The race to create the lowest possible health insurance rates could cause some states to begin cutting back on many of the required benefits. Because the goal would be to continue attracting new customers, there would be a need to keep lowering the prices of policies. At some point, the only way to do that would be to remove the ancillary benefits of a plan and to start dropping basic consumer protections.
Imagine that one state removes drug rehabilitation from their mandated health insurance plans. People from other states would flock to the new policy because it is cheaper for them, leaving a smaller pool of risk for those who want the expanded benefit. Although the one policy would see a decrease in cost, the other plan would see a net increase occur.
4. Some medical providers might not accept out-of-state insurance.
If out-of-state policies are sold on the health insurance market, there must be a local provider available to that subscriber to use the benefit. That means many of the policies would likely be indemnity options, especially during the first years of implementation. This structure allows for the most consumer choices, but it also comes at the highest cost. If you wanted to save money by using an HMO or a PPO, then there is an excellent chance that you’d be using an in-state provider for several years after policies can be sold across state lines.
5. Adding more health insurance coverage would increase wait times.
The United States is already experiencing a shortage of doctors and nurses within the healthcare industry. When the Affordable Care Act allowed more people to access local doctors, wait times in some rural communities went from one week to three months almost overnight to get an appointment with a doctor. Although there are several market forces that would help to manage this disadvantage in some ways, the reality of this idea is that cheaper care creates a longer wait. If you need to see the doctor immediately, then that will mean a visit to urgent care, a walk-in clinic, or the local emergency room – and all of those options cost more than a visit to your PCP.
6. It will still create pockets of high-use spending.
If insurance companies gain the ability to sell health-related policies across state lines, then the migration patterns will have people in high cost-of-living states seeking out plans from those with fewer expenses. That means the regions with the lowest costs will provide the highest value with this idea. If you lived in New York, then you’d want to see what a policy from Wyoming might offer.
That means there will still be pockets of policies issued that could impact pricing. Once the market sorts itself out and everyone finds the most value at the lowest price, the cost of coverage will start rising again because population movements will reduce over time. A sudden influx of households chasing cheaper premiums would likely cause the costs to rise anyway, which would mean an immediate loss of income for those already on that highly desired plan.
7. This idea could cause us to return to the exclusion of pre-existing conditions.
Before the healthcare system received an upgrade through the Affordable Care Act, health insurers could exclude people from coverage if they had a pre-existing condition. You would also receive a funding cap, often $2 million or less, on your lifetime benefits. If you came down with a serious condition, then it was possible to burn through your benefits quickly and then find yourself without having any insurance at all.
If we start allowing health insurance sales across state lines, then we could return to that scenario once again. Companies would start to court the healthiest members of society to offer low-risk, cheap policies while forcing everyone else to pay higher premiums because of the changes that occur in the risk pools.
8. Health insurers could refuse to cover specific conditions with this idea.
Before the Affordable Care Act changed the requirements of what states and policies had to cover for people, there were states that did not require insurers to cover specific conditions. In 2009, the state of Ohio had an estimated 675,000 people living with diabetes, but it was one of the four states in the country that didn’t specifically require insurers to cover the condition. Even cancer screenings were not immune to this issue, with some types not even covered through the testing phase.
9. There isn’t much interest in this process at the moment.
Although conservatives in the United States (and free-market champions) support the idea of selling health insurance across state lines, there has been little interest by the companies or the states to turn this concept into reality. There are five states who already allow health policy sales in this manner: Georgia, Kentucky, Wyoming, Maine, and Rhode Island. Under Obamacare, states can allow cross-state health policies as long as the insurer follows the regulations of the state where it sets up its headquarters.
10. It would encourage insurers to set up policies in states with weak standards.
An Urban Institute analysis found that insurers would have a powerful financial incentive to set up their operations in the states which have the fewest regulations. They could sell basic coverage to the people with the lowest risks, helping the make money while those in that demographic save it. Without a balance of the young and the elderly, the healthy and the sick, there would no longer be an incentive to go for fuller care.
11. This idea would discourage research of hospitals and doctors.
When someone thinks that they are getting a great deal, then they don’t bother trying to research the various doctors, hospitals, and care networks that are available to them in their insurance policy. There is confidence in the idea that nothing bad will happen. When a sudden cancer diagnosis occurs, then there is suddenly zero knowledge on the standards or availability of treatment supported by their insurance. You must know that your policy can meet your needs, which means adequate benefits must be available from the start.
The National Association of Insurance Commissioners worries that a collapse of the state-based system of regulations would make it more challenging to get effective insurance. It might also make each company less accountable for their decisions while make it more difficult for regulators to help customers in their states.
Conclusion of the Pros and Cons of Health Care Insurance Across State Lines
Until we implement an idea that allows insurance companies to start selling policies across state lines in the United States, the pros and cons of this idea are mere conjecture. We can theorize and make educated guesses about what might happen, but the discussion is more about the politics of the idea more than anything else. There is some merit to both views, which is why the key points are so important to review.
Because each state regulates the way that insurance companies do business, there are some significant obstacles in the way of allowing this idea to come to fruition. A company must be licensed to issue in the state where you live to offer a policy.
Some households would undoubtedly save some money by purchasing policies from a different state. There will also be families with challenging healthcare needs that might see a significant increase in what they pay. By evaluating the merits of each argument, you can decide for yourself which side of the debate you support.
Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.