Purchasing Insurance Across State Lines

Report to the TMA Council on Socioeconomics, May 2017

Background

At the January 2017 meeting, TMA staff suggested the following language for consideration by the council for potential TMA policy:

Purchasing Insurance Across State Lines:  The Texas Medical Association supports federal efforts to allow the purchase of health insurance across state lines only under the following conditions: 

  • Each health insurance or HMO product purchased by a Texas resident on an individual basis or through group coverage must meet the provider network adequacy standards set forth by Texas regulations for plans that restrict or limit coverage based on in-network/out-of-network distinctions.
  • Each health insurance company or HMO that covers a Texas resident on an individual basis or through group coverage must be subject to prompt pay requirements that are equal to or greater than Texas regulations.
  • Each health insurance company or HMO that covers a Texas resident on an individual basis or through group coverage must meet the minimum financial solvency standards that are required for Texas domiciled carriers.  

The proposal was discussed, with the council subsequently asking TMA staff to study the issue further and report back.

The Affordable Care Act, signed by the President in 2010, actually provides for the sale of health insurance across state lines. States may form interstate compacts that would allow states in those compacts to sell qualified health plans to purchasers in other states in the compact. Georgia, Kentucky, and Maine each passed laws to permit these sales after the passage of ACA. While Georgia’s law applies only to non-group insurance coverage, other states like Maine, Connecticut, Rhode Island, Wyoming, and New Hampshire are permitted to sell group insurance across state lines. However, to date, not one insurance company in any of these states has offered a product to sell for this purpose.

Researchers point to various reasons why the current allowance for interstate purchasing has failed to this point:  

  • Compacts require a consensus. State legislatures and insurance departments generally don’t have consensus on how they want their domiciled insurance companies to be regulated or how their insured population should be treated. Issues such as which mandates to require and the appropriate financial condition of the insurance company are often not agreed upon.
  • Because the costs of health care are generally based on local issues such as physician and other provider availability as well as population demographics, working with other states creates an actuarial uncertainty that most insurance companies are unwilling to risk. 
  • Insurance companies that have attempted to build networks in other states have failed because of the “chicken-and-egg” concept.  To build a successful network, they must have enough members to enable them to negotiate successful contracts with physicians and other providers. On the other hand, they must be able to show the purchasers of insurance that they have an adequate network to meet their health care needs.  

Discussion

Proponents for allowing the sale of insurance across state lines argue that doing so would benefit consumers by opening up a wider variety of products by a wider variety of insurance companies, thereby decreasing insurance costs due to the increased competition. Additionally, supporters argue that consumers who live in states where excessive mandated benefits increase the cost of insurance would benefit from shopping for coverage in states where fewer mandates are required, giving them more options at lower costs, and would also allow them to tailor health plans that suit their particular needs.  

Opponents of the interstate purchase of insurance state that arguments in support are too simplistic and miss the actual effect such “benefits” will cause. Critics point out that benefit mandates and numerous regulations are only two of the factors that affect insurance premiums. Other factors such as health care practice patterns, provider supply, and market power also are significant factors in determining insurance premiums.  

Physician Issues

Physicians and other providers agree to discounted payment for services for a multitude of reasons, including steerage that well-known, established insurance companies can provide as well as a virtual guaranty of timely paid claims in full, among other reasons. New, unestablished or unknown health insurance companies that plan to enter a new market created by the opening of state borders have an uphill climb in recruiting physicians for their networks, unless they are willing to reimburse the physicians a greater amount than typical due to less steerage and an unknown administrative capability.  

Physicians and other providers are also unlikely to feel comfortable contracting with an unknown company, especially one that is domiciled in another state, unless they feel comfortable that they will be reimbursed in a timely matter and with little or no administrative hassles. In that most insurance companies are not without fault in paying some of their claims timely or correctly, physicians and other providers may not be assured that their complaints will be handled properly by a company that may not even fall within the jurisdiction of the state insurance regulators, and thus not subject to enforcement.

Because health care is essentially a local product, setting up provider networks, especially for out-of-state insurance companies, would be costly. That cost will not be written off by the insurance company, but rather recouped from their customers in the form of higher premiums.  

Patient Protection

Critics of the measure fear that in allowing interstate purchasing of insurance, federal laws may preempt stronger state laws and would thus lead to a subsequent regulatory “race to the bottom” in order to lower premiums as much as possible to catch the eye of potential customers looking for a health care bargain. 

At this point, it’s not clear how plans purchased across state lines would be regulated. Would the state from which the insurance company is domiciled or purchased be the regulator of that particular plan, or would the state in which the insured person resides be the overseer of the plan? This question is critical to ensure that the insured not only is adequately protected, but also is aware of which state will be the ultimate protector of the insured person.  

Critics of the interstate proposal believe that no matter which state has ultimate regulatory authority over the insurance company, it will be difficult for an insured person to get relief from problems with the insurance company, due to the very nature of the transaction. For example, regulators in Texas may find it difficult to effectively intervene on behalf of the insured person when the company that person has purchased from is not licensed in Texas and thus has no fear of meaningful sanctions from the out-of-state regulator. Likewise, if the duty to enforce consumer protection laws or regulations lies with the insurance company’s regulator in their domiciled state, that particular state’s regulator may not have sufficient resources or even the incentive to intervene. 

Conclusion

Most politicians and other advocates who endorse the idea of allowing the sale of health insurance across state lines believe that doing so would automatically open up competition among health plans, thus lowering the cost of coverage and increasing satisfaction of consumers desperate for health insurance premium relief. 

In reality, there are many factors that should be recognized as potential barriers to this seemingly free-market approach to the purchase of health insurance. Politicians and health insurance regulators owe it to the public to carefully examine all the identified barriers to ensure that what they are promising the public as a solution to the health insurance problem is truly a viable solution.  

Sources  

  • Selling Health Insurance Across State Lines: An Assessment of State Laws and Implications for Improving Choice and Affordability of Coverage. Sabrina Corlette, Christine Monahan, Katie Keith, and Kevin Lucia. Center on Health Insurance Reforms; Georgetown University Health Policy Institute; October 2012.
  • Sales of Insurance Across State Lines: ACA Protections and the Substantial Risks of Eliminating Them. Linda J. Blumberg. Urban Institute, Health Policy Center; June 2016.
  • Selling Health Insurance Across State Lines. 2016 Election Guide. American Academy of Actuaries.
  • Selling Health Insurance Across State Lines; Lessons for States and Questions for Policymakers. Jenn Jenson and Trish Riley. National Academy for State Health Policy.
  • Interstate Health Insurance Sales: Myth vs. Reality. National Association of Insurance Commissioners & The Center for Insurance Policy and Research.

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Last Updated On

May 25, 2017