In the Nation's Interest

Across the State Line

When I was in high school, I would have assumed that the title of this post related to a difference in the minimum age for purchases of alcohol between Pennsylvania and New Jersey.  Today, however, I would like to talk about interstate sales of health insurance policies.

A New York Times story (page A3 in my September 1 addition) took a decidedly negative perspective on the issue.  “The Problem With G.O.P. Plans to Sell Health Insurance Across State Lines” trumpets the Internet headline.  (The print edition is a slightly more subdued, perhaps pica-constrained, “The Problem With Selling Health Insurance Nationwide.”)  You may be aware that CED has recommended permitting interstate sales of health insurance as a part of our reform proposal, and if so, you may be concerned about our recommendation.  Don’t be.

So, what’s going on?  Republican presidential candidate Donald Trump proposed interstate sales during the recent Fox News television debate, contending that it would expand competition and elicit new and better plans from the industry.  The Times seeks to throw cold water on that idea.  The writer starts by pointing out that health insurance is regulated by the states, and that interstate sales might be allowed based on the regulation in the state of the insurance company rather than that of the customer.  If that were true, insurers all could migrate to the state with the most lenient regulation, much as banks issue credit cards from South Dakota and corporations in general have Delaware charters.  (If instead the regulation of the customer’s state prevailed, an out-of-state insurer would face the same hurdles as an in-state insurer, and there would be little change.  If fact, such sales are essentially possible today.)

States could well vie for the distinction of being the most insurer-friendly by engaging in a “race to the bottom” on regulatory rigor.  And if they did so, the Times reasons, health insurance nationwide could be weakened.  Whatever concessions the most lenient state offered to insurers immediately would spread across the country.  The central tendency of the regulatory concessions would be to allow insurers to offer sketchier plans to younger and healthier consumers, degrading the remaining risk pool and therefore making insurance more costly for everyone else who needs more-comprehensive coverage.

But a second line of argument is that allowing interstate sales would be merely ineffectual.  The Times pointed out that the greatest burden on prospective new plan entrants into a state market is not compliance with different regulation, but rather the establishment of a network of skilled providers – plus the underlying financial commitment.  So, for example, regulation under Medicare Advantage is essentially uniform across the country, but the domination of most markets by small numbers of plans suggests that entry by new competitors is far from robust.

The Times conclusion was that “…even enthusiasts for interstate insurance sales say the plan is ‘not a panacea’ or ‘not a silver bullet.’”  This seems like a weak indictment, considering that no one has gone so far as to articulate specific legislation that in fact would change practice to allow across-state-line plan sellers to follow their own states’ regulations.  (Such a change would raise questions of how regulators in state A would practice their art in state B under our Constitution.)

But all of this says very little about the CED proposal.  Even this childhood fan of the Lone Ranger stopped looking for silver bullets a long time ago, and our comprehensive approach would do much more than just allow interstate sales.  For one thing, we would risk-adjust insurer premium revenue, which would halt in its tracks any effort by out-of-state plans to cherry-pick young and healthy consumers.  We would guarantee issuance, which would mean that plans could not underwrite or turn away consumers based on their health.  And we would create an alternative federal regulatory system, rather than opening up insurance regulation to de facto state competitive bids, to facilitate the marketing of plans nationwide without encouraging a deterioration of standards.

Our approach would give every consumer a fixed-dollar, refundable tax credit to access insurance coverage.  That would mean that every state would offer far more potential empowered consumers than is true today under the Affordable Care Act.  There would be much more reason for insurers to try to develop attractive plans that they could market nationwide, under the streamlined regulatory system that we propose.  Increasing the incentive and lowering the hurdle simultaneously should elicit far more insurer interest than we see today.

The Times article considers interstate sales as an isolated change, and concludes that it would not by itself revolutionize health care.  CED proposes a comprehensive array of improvements, of which interstate sales would be one component, in today’s Affordable Care Act.  We believe that the whole would be significantly more than the sum of the parts, and thus we are confident that our approach would fundamentally redirect the potential energy in our health care system toward greater pursuit of quality and efficiency.  And we all know that U.S. health care is on a dead-end street otherwise – whether or not that street crosses the state line.