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Selling Health Insurance Across State Lines

By Dr. Nilesh Kalyanaraman
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Have you ever wondered why when you sign up for health insurance you have to specify which state you live in? It's because of the McCarran Ferguson Act which exempts health insurance from federal regulations as long as an insurance plan is sold in only one state. This means that when you get health insurance (or auto or home insurance) you have to get a plan that adheres to the standards in your state.

Each state mandates that certain services or certain people have to be covered by every health plan offered in that state. For instance, every state mandates mammogram coverage but only 8 states mandate coverage for telemedicine services. Minnesota, Rhode Island and Maryland have over 65 mandates whereas Alabama, Utah and Idaho have fewer than 25 mandates. More mandates means more comprehensive coverage but it also means higher costs.

Why did I bring all this up? It’s because Rep. Marsha Blackburn, a Republican from Tennessee, has introduced a bill to repeal the Affordable Care Act and replace it by allowing health insurance to be sold across state lines.

Allowing health insurance plans to be sold in multiple states is an idea that has been kicking around for a while and it's a good idea in theory. Right now most states have only a few insurers so there’s very little competition between insurers which keeps plan prices high. Allowing plans to be offered in multiple states would allow more insurers to offer plans in each state. This would increase competition which would bring costs down.

But there's a catch. What minimum standards would each insurance plan have to adhere to? If a plan is sold in Minnesota and Idaho which state’s regulations would it adhere to? It would be cheaper if it followed Idaho standards but it would also cover far fewer services. If it followed Minnesota standards it would provide more comprehensive coverage but at a higher price.

Insurance plans would set up shop in a state with fewer regulations since it allows them to have maximum flexibility in avoiding coverage of costly treatments and services. This would lead to a race to the bottom, as some states would try to attract health insurance companies by minimizing their regulations. The overall quality of health plans would decrease which would leave many more people underinsured. (For an example of the regulatory race to the bottom see why most credit card companies are located in South Dakota).

People who are underinsured have health insurance but are at risk of facing unmanageable costs if they have a serious illness because their plan covers only a limited number of services and/or has high out of pocket spending requirements. Prior to the Affordable Care Act (ACA) approximately 25 million people were underinsured which meant that their insurance was likely to fail them when they needed it the most. The ACA solves this problem by eliminating caps on insurance coverage and by mandating standards of care that are comprehensive enough to meet a reasonable level of care.

So if Rep. Blackburn is serious about protecting the health of our citizens then, by all means, she should push for a law that allows health plans to be sold across state lines. But, she should do so under the framework of the ACA in a way that maximizes the protections for our citizens.

 

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