What Would Selling Insurance Across State Lines Accomplish?

Several of the proposed versions of draft legislation promote the idea of selling health insurance across state lines. Ostensibly, the rationale is that health insurance rates vary widely by geography due to limited competition, and that lowering the barrier for an issuer to enter a new market would cause premiums to drop to the level of the most efficient issuers in the country.

In reality, this change is not likely to materially impact premium rates. The differences in rates by geography are primarily influenced by factors that would not go away under implementation of this rule such as difference in payment rates expected by providers and medical practice patterns, as well as the demographics, health status and income of the patient population in each market.

In addition, allowing issuers to sell insurance across state lines would not remove the biggest barrier against an issuer expanding its geographic reach. Most issuers are regionally limited due to the high costs of building a provider network robust enough to service new markets, so it is not clear to what extent this component of a proposed law would be used in practice without further details.

One of the consequences of this component of the draft legislation might be to corner states into deregulating health insurance. Plans with provider networks in multiple states may domicile their business in the state with the least restrictive regulations. Lack of regulations may translate into the ability to offer lower cost plans. For example, if an issuer is domiciled in a state that does not require autism coverage but all other states do, then all else equal, the issuer may be able to sell their plans at a lower cost in these ‘other states’ because it does not have to cover autism benefits while their competitors do. States may be forced to deregulate to prevent issuers from relocating their states of domicile to other states with fewer regulations.