At some point during the Republican debate in New Hampshire Saturday night a candidate will call for allowing consumers to buy health insurance offered in other states. Apparently all the remaining presidential contenders support this as part of repealing and replacing the Affordable Care Act. Unless I’m missing something, however, this proposal makes no sense and won’t work.
The idea is appealing at first glance. Enabling consumers to buy health insurance available in another state increases choice and competition. Greater choice helps consumers find the plan that best fits their needs. Greater competition means they pay a lower price for their coverage. So far so good.
Look more carefully, however, and problems with this approach quickly become apparent.
Republicans being Republicans, the candidates are not calling for federal regulation of health insurance. They would still have state laws and regulations govern carriers. Which complicates things. While state regulatory structures need to be compatible with the Affordable Care Act, there’s still a lot of variety among the states.
These differences may be over treatments and services benefits policies must cover, how premiums are calculated, what reserves carriers must maintain, the size and nature of their provider network, and what consumer protections they provide their citizens. And so on.
If a Texas consumer buys a Connecticut carrier’s health plan, which state’s laws would apply? If the answer is Texas, then this reform does nothing: today carriers can offer policies outside their home states, they just need to meet the regulations imposed by the purchaser’s home state. Aetna, Anthem, Cigna, Humana, Kaiser, and United Healthcare are among the many carriers that sell policies in multiple states today.
Things get interesting if the answer is Connecticut, however. Leave aside the challenge a Texan faces in enforcing Connecticut consumer protection laws. Few carriers would domicile in Connecticut as their insurance laws are generally considered tougher than average. Instead, most health plans would seek out the state with the most insurer-friendly regulations and lowest reserve requirements. Just as South Dakota made itself attractive to issuers of credit cards and Delaware popular with C-Corporations, some state will become the favorite location for health insurance companies to call home.
In addition to opening the door to weakened consumer protections, advocates of empowering consumers to buy out-of-state policies display a profound ignorance of how health insurance works. Take just one example: networks. They matter; a lot. Under the ACA 80% of premiums an insurer collects for small group and individual policies must go towards medical expenses; that percentage increases to 85% for policies sold to larger companies. Which means health insurance premiums are strongly and directly impacted by how much insurers pay doctors and hospitals.
Carriers able to negotiate deep discounts from providers will be well priced; those that don’t won’t be. Doctors and hospital discounts are based in large part by how many patients the carrier can deliver to them. Carriers spend millions developing a strong network with the deepest discounts possible. Physicians and hospitals tend to be local, which means even national networks are cobbled together state-by-state, if not city-by-city. A New Yorker may like a policy available in New Hampshire (at about 1:25 into the clip). Unless the New Hampshire insurer has invested the time and resources necessary to build a competitive New York network the policy is worthless there.
This means whether a consumer wants to buy a medical policy available in another state is irrelevant, regardless of the wishes of politicians. What matters is if the carrier wants to sell policies in that consumer’s state. And if they do, they already can.
The first time I heard a presidential candidate call for this cross-border buying reform was in 2008 by then Republican presidential nominee Senator John McCain. How this nonsensical reform proposal has survived this long is a mystery. Either I’m missing something (I admit, a very real possibility) or journalists don’t know enough to call the candidates out on this sham of a reform so they continue to put it out there. If it’s the former, please educate me. If it’s the latter, however, maybe someone could sneak this post to one of the debate moderators?
A version of this article was originally posted on LinkedIn.