Cross-State Health Plans Prove Popular But Unsuccessful

Hoping to increase competition and lower premiums, three states allow consumers to buy health coverage from out-of-state insurers and more are trying. But the laws have fallen short of expectations.
by | February 3, 2015

State Sen. Joe Benning, a Republican from Vermont, thinks the mood in his state is ripe for an entirely different direction in health care after Gov. Peter Shumlin gave up on creating the nation’s first single-payer system in December. To Benning, that means allowing the sale of out-of-state health insurance plans -- an idea that continues to prove popular but unsuccessful.

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Benning won’t be the only legislator pushing out-of-state insurance plans this year. Republican state Sen. Andy Sanborn in nearby New Hampshire has already filed his own bill, which goes farther than other state's efforts to reduce regulation for out-of-state policies, and neither Benning nor Sanborn is likely to be alone this year. At least 22 out-of-state insurance bills were filed in statehouses last year, according to the National Conference of State Legislatures.

Proponents, who are typically conservatives, argue that the current system inhibits competition among insurers, making coverage more expensive. In New Hampshire, for example, the insurance giant Anthem covers more than 80 percent of all individual policies. More providers, Sanborn argues, would increase competition and lower the cost of plans for Anthem's existing customers while offering new options.

Critics, though, argue that the current system best serves consumers and that the price differences would be so small that the possible downsides -- destabilized markets, less consumer protection and lower quality insurance -- far outweigh any benefit. 

Despite widespread attention, only Georgia, Maine and Wyoming have passed laws allowing out-of-state companies to sell insurance plans to their residents. Like Benning’s bill, they still require the authorization of insurance regulators who generally oppose such laws.

“My bill is different in the extent that those [other states] require multiple layers of approval, so it just becomes more expensive and cumbersome,” Sanborn said.

The Affordable Care Act (ACA) established a bare minimum of benefits for all states, but states can still decide to require extra benefits, such as autism service coverage, and state regulators have some latitude over how premiums are determined. The Affordable Care Act bans insurers from pricing or denying coverage based on pre-existing conditions, but states can make coverage more expensive for smokers or prevent insurers from charging older customers substantially more than younger customers. This means younger customers might be able to get cheaper out-of-state plans where insurers are allowed to charge older people more, and older customers might be able to get cheaper out-of-state plans where insurers are prevented from charging older people more.

If states allowed any insurer to enter their market, insurance commissioners fear insurers would cluster in less regulated places and pick off consumers in more highly regulated states, which would make the risk pools in those states less stable.

Besides, the National Association of Insurance Commissioners argues, the cost of regulation adds at most 5 percent to the price of a health plan. Other research similarly concludes that regulation determines very little of the ultimate price, but one peer-reviewed paper from 2008 found state regulations create significant differences. Two of those common types of regulations -- exclusions based on pre-existing conditions and the process of underwritting -- have now been banned through the Affordable Care Act, though, which is one reason recent Congressional bills -- all unsuccessful -- have depended on repealing much of the law.

“In the past, it was, ‘Do we want to let the healthy people take advantage of cheaper insurance in another state?’" said Tyler Brannen, a health policy analyst at the New Hampshire Insurance Department. " But more recently, he said the consensus has been: "If there’s not much of a difference [between policies], then why do it?”

Despite the potential to make more money, companies haven't jumped at the opportunity in states that have lowered barriers. Insurance department officials in Georgia, Maine and Wyoming told Governing that no out-of-state insurers have expressed interest, and no such policies have been sold.

Denise Burke, a senior policy and planning analyst with Wyoming’s insurance department, suspects the state’s extremely low population density and the difficulty of building a provider network has discouraged insurers. “Accessibility, getting and keeping qualified providers -- insurance companies are simply not interested in pulling us into the fold,” she said.

The investment of building a network of doctors in a state often comes up as a bigger barrier than state regulation, even among some supporters of the idea of selling policies across state lines. Thomas Miller, a resident health care fellow at the conservative American Enterprise Institute, acknowledges “it’s not easy to be a new insurer overnight,” but he says there are a few ways to make the investment more worthwhile.

The first, Miller said, would require a block of states passing legislation to open up their markets simultaneously to help spur investment or by forming an interstate compact, under which participating states agree to basic regulations. “The complication there is that each state thinks it’s a really great idea as long as every state agrees to their regulation,” he said.

The idea of forming a compact, which has to be approved by Congress and possibly the president, has generated interest, with nine conservative states passing bills seeking to form one to convert virtually all federal health-care dollars into a block grant. But the effort hasn’t gone anywhere and could face a tough road to passage even in a Republican Congress.

The other way, Miller said, is for federal legislation requiring states to accept policies from out-of-state insurers. But that route -- which has been tried multiple times -- faces resistance from states themselves. He argues it’s still worthwhile, though, for states to take a patchwork approach in case the U.S. Supreme Court forces changes to the ACA that weaken its standards and allow for greater variation between policies again.

But even if that happens, regulators argue it would come at the cost of customers losing their ability to address problems because insurance departments hundreds of miles away won’t have to listen.

"Who’s going to take care of you when something goes awry?" said Linda Blumberg, a senior fellow at the Urban Institute who follows the issue. "Because where you live, the insurance commissioner can’t do anything for you, and you’ll be an incredibly low priority for some other state because you don’t live there, vote there or pay taxes.”