Selling Health Insurance Across State Lines

The  suggestion from conservatives to sell health insurance plans across state lines seems to be not well understood by conservatives and liberals alike.    Here’s an attempt to answer some of the questions that never seemed to get asked or answered?

Why can’t I already buy health insurance across state lines?

Insurance is regulated by the government in each state.  To sell policies in a state, a company must meet the requirements set by that state government through the legislative process.  These requirements specify things such as what type of treatments must be covered by a policy, who qualifies, how the insurance company can determine eligibility and so on. All of these requirements originate in the state legislature and are buried in the states’ statutes.

The requirements for insurance policies in Missouri can be found here.

The common misunderstanding about this issue is that there is a Federal restriction about selling policies across state lines.  To my knowledge (but could be wrong and would love to be corrected if I am), this is not true.  The restriction comes from individual states.

Simply put, Blue Cross Blue Shield can’t sell a policy that meets Idaho’s requirements in Missouri because that policy does not meet Missouri’s requirements.

What is a mandate?

A mandate is a type of expense or coverage (benefit, provider or covered person) that a state legislature, at some time, passed a law to specify that health insurance policies  in that state must cover.

For example, only two states mandate that insurance policies cover the costs of smoking cessation, while other states do not.  An individual in the other states may or may not find a policy the covers smoking cessation, but in those two states, everyone with insurance is covered for smoking cessation – even if they’re not smokers.

Here’s a really good reference that shows what each state mandates for insurance coverage as of 2008.  According to this list, Idaho has the fewest mandates with 15, while Minnesota has the most with 64.

As an example, the above linked list that Missouri has an alcoholism mandate.  Here’s a link to that mandate in Missouri’s statutes, in case you wanted to see a specific, real world example.

What exactly is the suggestion?

The idea to “sell insurance across state lines” means using the Federal government’s authority to override (or undermine) the states’ insurance authority and give the residents more choice on what types of expenses they would like to have covered in their insurance policies.  Now, that’s minimum is decided by the state governments.

For example, if I lived in one of the two states that requires the coverage of smoking cessation, I might be able choose a plan from one of that other states that doesn’t cover smoking cessation since nobody in my family smokes and that might save me a few dollars on my policy.

How would buying policies across state lines, or more accurately, policies that meet the requirements set by a state other than your home state, help?

New Yorker, Andrew Hienze wrote this opinion piece in the Wall Street Journal on November 13, 2009.  Here’s a key paragraph:

…unlike other states, New York already mandates two things that the current federal health-care reform will mandate. The first mandate prohibits insurers from denying coverage because of a pre-existing medical condition. The second mandate prohibits insurers from denying coverage, or determining prices, based on age. The result is that HMO plans in the state are now very expensive. The price of Empire’s basic, least expensive HMO plan is more than $13,000 a year for an individual, more than $26,000 a year for a married couple, and more than $39,000 a year for a family with children. Empire is a reputable firm and those prices are typical of what’s available to New York City residents.

Because of the high expense of the New York plans, Hienze currently buys a plan for $2,000 a year in New York that only covers hospital expenses.  He pays all of his other medical costs out of pocket because in most cases he can cover that with the $11,000 savings he incurs by not buying an individual insurance policy.

With the ability to “buy across state lines”, Andrew would be able to purchase a plan from a state with fewer costly mandates.  The $13,000 individual HMO plan in New York, a single person in my home state could buy something similar for $2,000-$3,000 dollars per year.

I will mention that as I was fact checking with eHealthInsurance.com, the Empire HMO plan that Andrew listed was one of the most expensive and currently quoting around $14,000/year.  That’s a $0 deductible, $0 copay plan.  For some deductible and co-pay, a single New Yorker can get a PPO plan for around $5,000/year.   However, a similar plan in my home state costs less than $700 per year.

New Yorkers already can’t afford insurance in New York.  Much like Andrew, they’re probably opting for cheaper plans that cost less like the Traditions Hospitalization plan.  Giving them a chance to get more coverage for less isn’t a bad thing.

What are the trade-offs?

I don’t think this is without risks.  Overriding state insurance authority by the Federal government is not ideal balance of power situation.  States should be allowed to make up their insurance rules and any justification to cut them off at the knees on this issue raises can be used for other things.  However, the precedent has already been set in other areas.

While the intention is good: give people more choice over their level of health care, I think this may also lead to more Federalization of health care and I believe Federal mandates would soon follow.  For example, “in order to be able to sell this policy in other states it must be meet the following minimum requirements.”

Which, gets us back to where we are today.  Part of the reason health insurance is expensive is because of the mandates.  This cannot be denied.  If an insurance must cover an expense that will be incurred by X% of people, then it must collect enough premiums to cover that.

Is this a good solution?

I’m not so sure.  I don’t think it’s bad to give people more choice.  But, I do fear that forcing that choice from the Federal government could lead to more Federal meddling and eventually make it worse for the people in the states that already have affordable health insurance.

This isn’t my #1 solution to the nation’s health care woes.   After giving this more thought while putting this blog entry together, I’m not sure it’s even my #3 or #4 solution.

If New Yorkers want to make their health care unaffordable by putting in expensive mandates, I don’t have much problem with that.  That’s their choice.  They can also reverse it by sending different people to their state legislature.

What are other solutions?

My #1 solution is to reduce the percentage of medical payments that are paid by third parties (i.e. not the people receiving the treatment).  Health Savings Accounts with high deductible/catastrophic insurance is one way to do that.  Changing the way government programs like Medicare work to be similar to the HSA model is another.

I can attest, when I went from a $0 deductible, low co-pay plan to a $5,400 deductible, HSA plan where I wrote the check for the first $5,400 of expenses my world changed.  I started asking questions that I didn’t ask before and I started keeping my eyes open for deals and ways to improve my health.

My #2 solution is to equalize the the tax treatment of individual and employer purchased plans so it would make financial sense for us not to get our insurance through our employers.

Both of these solutions would drive more accountability and innovation into the medical care health insurance industries as well as in giving.  More on that later.