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Why 'Across State Line' Insurance Won’t Save Money

For years, opponents of the Affordable Care Act (aka Obamacare) have pushed the idea of allowing insurance companies to sell their policies across state lines. In his recent address to Congress, President Trump promised that it would create “a truly competitive national marketplace that will bring cost way down and provide far better care.” The idea is part of the four ACA replacement proposals put forth thus far, but it is not part of the plan introduced in the House this week.

Would selling across state lines really make a difference? Not according to insurance regulators, actuaries, and policy experts. Insurers would compete to sell inexpensive, bare-bones plans to the youngest, healthiest consumers, leaving everyone else to cope with rising premiums.

The background

Health insurance is licensed and regulated at the state level. A national company like Aetna or UnitedHealthcare must get licensed in each state individually to sell policies there. Under the “across state lines” proposal, an insurance company could get licensed just once, in a state with lax regulations, then sell policies in whatever other states it wants.

Proponents say this would enable insurance companies to save money by shunning states that mandate costly benefits such as maternity care or autism treatment. (For that to happen, though, Congress would have to vote to get rid of the ACA’s “essential health benefits” requirement that all insurers cover these two services, among others.)

But the people who actually price and regulate health insurance say the idea won’t work. Here’s what they say would happen instead:

1. Insurance sold across state lines into high-cost states would still be expensive. “If you site a policy in Mississippi and sell to people in New York, your provider network has to be in New York,” explains Kevin Lucia, an insurance expert with Georgetown University’s Center on Health Insurance Reforms. A few years ago Lucia and colleagues interviewed a number of insurance companies on the “across state lines” idea. The insurers said they faced a “chicken-and-egg dilemma”: without an existing customer base, they couldn’t negotiate low prices from doctors and hospitals, yet without an adequate supply of providers, they couldn’t attract new customers. And higher fees for providers translate into higher premiums.

2. Insurance sold from states with lax regulation would be cheap, but skimpy. Companies would locate in states that allowed them to turn down sicker people and sell low-premium plans with limited benefits or high deductibles that appeal only to healthy people. “Insurance policies would cover less and less, as insurers try to design policies that discourage the sickest customers from applying,” says a fact sheet on “across state lines” sales prepared by the National Association of Insurance Commissioners.

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3. Premiums would spiral upward for more comprehensive plans. Health plans in states with more consumer protections would get more and more expensive as younger, healthier customers flee to cheaper across-border plans. “Eventually, the viability of those insurers would be threatened,” warns an issue brief from the American Academy of Actuaries. “As a result, older individuals and those with health problems would find it more difficult to obtain coverage.”

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