Selling Health Insurance ‘Across State Lines’

As we move further into this presidential election year, I am getting more and more questions like this: “So, Mike, you understand this healthcare stuff, right? Which candidate has the best plan to fix healthcare?”

A great and massive question. In fact, great enough and massive enough to spawn about 10 Straight Talk blog posts. This will be the first one, focused on that old question, “Why can’t we sell health insurance across state lines?”

To be perfectly transparent with you – in no way in this series of blogs am I going to associate any presidential candidate with any specific ideas, and I am definitely not going to endorse any specific candidate or idea.

My team of first-class editors is simply scanning all the healthcare policy statements and publications of all the candidates going out in the public sphere, and I’ll be using what the candidates are talking about to educate you on the realities of these policies from my own Straight Talk perspective. As usual, you are under NO obligation to agree with me, but my goal here is to give you some factual flesh to these bare-bones ideas.

Today, we will start with an oldie but a goodie. Goes like this: “If I could buy my health insurance from any state in the union and shop online nationwide (think Amazon), then surely I could get the absolute best deal for my money!”

It’s the most natural thing in the world. The more choices I have, the more likely it is that I can find something that fits my needs more exactly. So, free me from the chains of “Louisiana health insurance,” and let me be free to find something better! Hey, that Idaho PPO plan is looking pretty sweet! And cheap, too! Let’s just call our imaginary out-of-state plan the “Idaho Plan” for giggles.

First, a little history. Prior to March 23, 2010 (that date should sound VERY familiar to you all by now – it’s the date the healthcare reform law passed), health insurance for individuals and small groups was 100% regulated by state insurance commissioners and state legislatures. In effect, we had 50 different definitions of health insurance.

The amount of regulation at the state level varied a ton. Four states had NO state insurance regulations for health insurance as late as 2009. Some other states were so heavily regulated that insurance was completely unaffordable. In New York, for example, insurance regulation was such a mess that as late as 2013, only 17,000 people out of 20 million owned an individual policy. Even Louisiana had 200,000 people covered through individual policies on that same date.

But once the reform law passed, individual health insurance (and small group insurance as well) became heavily federalized in an effort to standardize it from coast to coast. Variation is still possible, but the LEAST amount of coverage you can buy is now set by the Feds, not your state regulators.

Since healthcare reform, variation is way down from what it was before, but the minimum standard for coverage is WAY up. All states now require people who buy individual insurance to buy a lot more coverage than what would have been the minimum in a lot of states before 2010. More required coverage equals more medical costs.

Premium variation is almost entirely about medical costs.

That’s fine Mike, but quit stalling! You still haven’t told me why I can’t shop for any state’s insurance at my house? Actually, I kind of did. The reason you want to shop for insurance in other states is to save money, right? The reason politicians use this idea as a talking point is because they want you to believe that most of the cost in your insurance is driven by your state’s regulations, and health plans in other states that have fewer regulations will sell you cheaper coverage.

Nice in theory. But consider this: by law, more than 80% of your premium dollars have to cover medical expenses for someone, not necessarily just you. Presumably those “someones” are your friends and neighbors who live around you and use a lot of the same doctors and clinics you do. If you need care, and your insurance is from Idaho, are you going to travel to Idaho to see a doctor? Probably not!

“All states now require people who buy individual insurance to buy a lot more coverage than what would have been the minimum in a lot of states before 2010. More required coverage equals more medical costs.”

But Mike, that’s silly! Can’t the Idaho plan just build networks of docs and hospitals in Louisiana like Blue Cross did?

Sure they can! But when Blue Cross goes to negotiate with a doc, or a hospital about payment rates for our members’ care, we bring 1.6 million potential LOCAL customers with us. Imagine the leverage that gives us!  This means we get powerful discounts.  Now think about Idaho’s dilemma…

The Idaho Plan comes into town with zero local members, tries to build a network – what do they have to bargain with?  Can they use the weight of 1.6 million members to lower their costs?  Nope. The plain fact is, at least 80% of the cost of health insurance is the cost of healthcare (ours was 87% in 2015!), not the incremental regulatory differences between states – especially since healthcare reform standardized individual insurance from coast to coast. Thus, to set up an insurance company “across state lines,” like our Idaho Plan, you’d  begin with much higher medical costs.

We don’t have to be theoretical about this. We have two real-world examples to speed us along.

In 2013, the federal government essentially funded an “Idaho Plan” and gave some folks about $70 million to start up a brand-new-made-from-scratch health plan here in Louisiana called the Louisiana Healthcare Co-Op. It opened its doors with no members on Jan. 1, 2014, signed up around 18,000 people, went broke and shut down on Dec. 31, 2015. I’ve already written a blog post about that, and you can read the sad tale here. Suffice it to say that, without strong discounts, they could not survive.

But for our purposes, the Idaho Plan coming into Louisiana would have the same hurdles the Co-Op did. How can they start from scratch and have lower medical pricing than us and other, long-established insurance companies that have been doing business here for years? They simply cannot.

“The plain fact is, at least 80% of the cost of health insurance is the cost of healthcare (ours was 87% in 2015!), not the incremental regulatory differences between states – especially since healthcare reform standardized individual insurance from coast to coast.”

And finally, the real proof is in the real world.

In 2011, Georgia joined six other states when they passed HB57, a state law that allowed any insurance company in compliance with the individual health insurance regulations in any state to sell plans to Georgia residents. They only had to comply with ANY state’s regulations, not follow Georgia’s rules for health coverage.  As of late 2013, not a single company – not one – had applied to do so. No company applied to do so in the other six states that passed similar laws, either.

If real insurance companies can already sell across state lines into seven states, and not a single carrier has chosen to do so, surely there must be a good reason. There is:  the “savings” are an illusion; they simply do not exist. Or as the Georgetown Health Policy Institute put it:

Building a network of local providers….is a significant barrier to market entry that far surpasses concerns about a state’s regulatory environment or benefit mandates….Across state lines, legislation ignores the primary cause of high health insurance prices—the cost of delivering care in the local market.
(http://www.rwjf.org/content/dam/farm/reports/issue_briefs/2012/rwjf401409)

‘Nuff said. Turns out that there is zero evidence that “Selling across State Lines” will save anyone a nickel of premium, and this idea has already failed everywhere it has been tried.

Like this detailed analysis of a Presidential Candidate’s talking point?  Feel free to comment below and suggest any other statements on healthcare you would like us to evaluate here at Straight Talk on Healthcare.