Health insurance and insurance in
general has traditionally been regulated by the individual states. Companies are licensed by the state to sell
insurance, and insurance laws and requirements are different in each
state.
Republicans, including Donald
Trump, have often advocated allowing insurance to be sold nationwide, i.e., across
state lines, to increase competition and therefore reduce rates, as part of
their efforts to replace the Affordable Care Act (ACA). Would this have the desired effect?
Currently, 21% of enrollees in
states using the federal exchange have only one participating insurer for
2017. This is hardly a competitive
marketplace and is viewed by many as one of the failures of the Affordable Care
Act (ACA).
Insurance rates are determined by
actuaries. An actuary is a business professional who deals with the measurement and management of risk and uncertainty. The
American Academy of Actuaries has released a February 2017 Issue Brief to
address the issue of selling health insurance across state lines. As you are about to find out, selling health
insurance across state lines is not as simple as it sounds. In their brief, the actuaries arrive at three
key points:
1.
“Allowing
insurers to sell coverage across state lines has limited potential for premium
savings, as premiums would continue to reflect local health care costs.” An individual living in a high-cost area
would not necessarily enjoy lower premiums by purchasing coverage from an
insurer licensed in a low-cost state.
Per the actuaries, premiums will reflect local health costs, regardless
of where the coverage is purchased.
2.
“Out-of-state
insurers would have difficulty developing provider networks and negotiating
provider or payment discounts.” In
order for insurers to sell across state lines, they would first have to develop
provider networks via reimbursement agreements with local hospitals and
physicians, or buy into an existing network.
Unless the out-of-state insurers were able to accomplish large
enrollment, they would have little leverage in negotiating with providers. Health Maintenance Organizations (HMOs), who
limit out-of-network coverage, would have even more difficulty operating in
other states.
3.
“Unintended
consequences could result if states are given more flexibility regarding
benefit requirements or issue and rating rules.
Adverse selection would occur, threatening the viability of insurers
licensed in states with more restrictive requirements. The ability of high risk individuals to
obtain coverage could be compromised as a result.” The actuaries say that the establishment
and regulation of state-level consumer protection laws is often ignored during discussions
of selling insurance across state lines.
These laws vary from state to state as to whether they require minimal network
adequacy or, for example, if they require an appeal processes for denied
services. Not only would this be
terribly confusing, it would be difficult for state regulators to regulate
out-of-state provider networks.
For a health
insurance market to be sustainable, competing insurers must all operate under
the same rules, according to the actuaries.
Allowing an insurer licensed in their home state to sell insurance in
another state under their home state rules would violate that principal. Per the actuaries, “The ACA harmonized many
of the rules applying to the individual and small group markets. Although states have mandated benefits to
varying degrees, the ACA’s essential health benefit requirements narrowed the
differences in covered benefits across states.”
Also, the actuarial requirements for the platinum, gold, silver and
bronze tiers of the ACA set a “floor” for plan coverage.
Finally, the ACA
harmonized issue and rating rules, which previously varied from state to
state. Medical underwriting is now prohibited
by the ACA, which means insurers can no longer deny coverage or charge higher
premiums to individuals based upon their health. The ACA also limited the extent that premiums
could be adjusted due to an applicant’s age.
If the ACA is
repealed but not replaced, or these rules are abolished or relaxed, and as a result the states
are allowed more flexibility, insurers licensed to operate in a state that
permits less generous coverage would attract the healthier residents of other
states. Premiums for insurance licensed
in states with more comprehensive benefit requirements would increase as a result,
and individuals with health problems could find it more difficult to obtain
coverage.
In conclusion, if rules governing
insurance are consistent across state lines (like they are now with the ACA)
premium reductions would be minimal because they would continue to reflect
local health care costs, no matter where the insurer is located. If rules governing insurance vary from state
to state, insurers based in states with more restrictive requirements would be
at a disadvantage compared to insurers based in states with less restrictive
requirements. Regardless, regulatory authority and consumer protection laws would
need to be very clearly defined.
Here is a link to the American Academy of Actuaries' brief, entitled, "Selling Insurance Across State Lines": http://www.actuary.org/content/selling-insurance-across-state-lines-0
