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The Debate Over Selling Insurance Across State Lines

A core feature of the health overhaul proposal unveiled by House Republicans — and of GOP plans for years — would allow individual health insurance policies to be sold across state lines. Currently, consumers can buy policies only from insurers licensed by the states where they live.

Congressional Republicans have proposed the idea in the past and Sen. John McCain, R-Ariz., embraced it as part of his presidential campaign last year. Advocates say it would give the more than 17 million Americans who buy individual coverage a greater choice of plans and the possibility of lower prices.

The measure does not apply to the 159 million non-elderly Americans who obtain insurance through their employers. Some insurers support the GOP approach, as does the National Federation of Independent Business, which says it would help the self-employed and also hopes lawmakers would give small employers the opportunity to buy workers' insurance this way.

But critics — including consumer watchdog groups and the National Association of Insurance Commissioners — say the provision would erode many state government consumer protections, leave policyholders with inadequate coverage and could actually lead to higher premiums for some people.

The Republican health plan was rejected by the House Saturday evening by a vote of 176-258. Just one Republican, Rep. Timothy Johnson, R-Ill., joined the Democrats to vote against the legislation. Nonetheless, advocates are expected to push for a similar provision when, and if, the full Senate takes up its health bill.

Here is a short primer on the issue.

What currently restricts insurers from selling policies outside of their home states?

States have primary regulatory authority over insurance. As a result, insurers are allowed to sell policies only in states where they are licensed to do business. Most insurers obtain licenses in multiple states. States have different laws regulating benefits, consumer protections and financial and solvency requirements.

What do advocates say are the main advantages to allowing insurers to sell across state lines?

The individual health insurance market is dominated in many states by just a handful of companies, so this provision would allow consumers to shop broadly for cheaper policies, supporters say. "You want to have greater competition in the insurance market and this does that," said Douglas Holtz-Eakin, a fellow at the Manhattan Institute and top health advisor to McCain during his presidential campaign.

The Republican bill says consumers may be able to buy "less expensive" policies in other states because of variations in laws and regulations. While some states may require insurers to pay for a particular treatment of autism, for example, others don't. Insurers bristle at many of these mandates, saying they drive up costs, but studies generally show their impact on rates is limited.

"This is absolutely a way to get around some of those state mandated benefit laws that are counterproductive and drive up insurance costs," said Merrill Matthews Jr., executive director of the Council for Affordable Health Insurance, which represents companies selling individual health insurance.

Why is there skepticism about the Republican measure?

"It always sounds appealing to offer more choice," said Kenneth Thorpe, an Emory University health policy expert and a Health and Human Services official in the Clinton administration. "But if you do look at it more closely, it does raise issues of regulation."

Regulation is important, critics of the GOP proposal say. In addition to requiring coverage of certain problems and treatments, some states require insurers to sell policies to all applicants and price them uniformly within the same geographic area regardless of individuals' health status.

If insurers can sell beyond state lines, the concern is that consumers would be attracted to the least comprehensive policies because they'd be cheapest. "You get what you pay for in these policies (and) consumers won't realize it until they are sick and it's too late," said Jerry Flanagan, health care policy analyst for Consumer Watchdog, a California consumer health group.

The states with the most comprehensive policies often mandate that coverage. For example, one state could require that insurers cover diabetic testing supplies, another might not. Critics say that, at best, selling insurance across state lines might not save much money, and they point to a 2005 CBO report that says: "if only those benefit mandates imposed by the states with the lowest-cost mandates were in effect in all states, the price of individual health insurance would be reduced by about 5 percent, on average."

There are also fears that consumers dealing with out-of-state companies would have difficulties resolving disputes. While the bill would require, in large type, consumer disclosure statements spelling out, among things, that the policy is "not subject to all of the consumer protection laws or restrictions on rate changes" required in the buyer's home state, "You should carefully review the policy and determine what health care services the policy covers and what benefits it provides, including any exclusions, limitations, or conditions for such services or benefits."

Critics say insurers selling across state lines would market policies to younger, healthier individuals. Older and sicker individuals would face ever-rising rates — or face being turned down — because their insurers would have fewer healthy people to spread risk. And, since health costs vary geographically, insurance purchased in one state might not cover as much of the cost of care in a more expensive state.

Do the Democratic bills allow some form of insurance selling across state lines?

Yes, but with much tighter restrictions than are in the Republicans' plan. The House Democrats' bill would allow states to form compacts enabling consumers to buy policies from insurers licensed in any of the states governed by the agreement. A consumer's home state would retain authority to handle disputes. The National Association of Insurance Commissioners, which represents state regulators, would have primary authority to develop rules, but if it failed to do so, the job would fall to the Department of Health and Human Services Secretary.

The Senate Finance Committee bill would enable insurers to create nationwide plans. Insurers would have to be licensed in each state where they sell these plans, but would have the authority to offer only those benefits mandated by the majority of states. Thus, benefits required by relatively few states would not have to be in the plans. States, however, could decline to make such plans available to their residents.

This story was produced through collaboration between NPR and Kaiser Health News (KHN), an editorially independent program of the Henry J. Kaiser Family Foundation, a nonpartisan health-care policy research organization. The Kaiser Family Foundation is not affiliated with Kaiser Permanente.

Copyright 2023 Kaiser Health News. To see more, visit Kaiser Health News.

Phil Galewitz
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