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Health Policy  |   May 2018
Implications of a National Health Insurance Marketplace
Author Notes
  • Dr Mast is a member of the Health Policy Fellowship Class of 2017. The fellowship is coordinated by the American Association of Colleges of Osteopathic Medicine. 
  • Financial Disclosures: None reported. 
  • Support: None reported. 
  •  *Address correspondence to Eric E. Mast, DO, Firelands Regional Medical Center, 1912 Hayes Ave, Sandusky, OH 44870-4736. Email: maste@firelands.com
     
Article Information
Obstetrics and Gynecology / Ophthalmology and Otolaryngology / Practice Management / Professional Issues
Health Policy   |   May 2018
Implications of a National Health Insurance Marketplace
The Journal of the American Osteopathic Association, May 2018, Vol. 118, 289-292. doi:https://doi.org/10.7556/jaoa.2018.043
The Journal of the American Osteopathic Association, May 2018, Vol. 118, 289-292. doi:https://doi.org/10.7556/jaoa.2018.043
The future of the Affordable Care Act (ACA) is uncertain. After the 2016 elections, the Republican-led Congress and the Trump administration signaled that repealing and replacing the ACA was one of their primary goals, although developing a viable replacement policy has proven to be extremely difficult. The American Health Care Act was passed by the House of Representatives in 2017; however, the Senate signaled that rather than vote on the bill, they would draft their own legislation. It is unclear which portions of the ACA will remain intact, which portions might be eliminated, and what various replacement strategies may look like. Nevertheless, many of the replacement proposals share common features, one of which is to lower the price of insurance policies via a national marketplace for health insurance that would allow consumers to purchase health insurance across state lines. 
Selling health insurance across state lines sounds like a straightforward proposal—a simple way to increase competition, enhance consumer choice, and lower cost. The challenge is that this simple-sounding approach doesn't accurately reflect the inherent complexity of the health care system nor the significant barriers to developing such a system—in particular, issues such as the cost and time needed to develop out-of-state networks and the unclear delineation of authority concerning how states would regulate and oversee policies outside their borders. Even though several states have successfully enacted legislation to encourage proposals for selling insurance across state lines, there has been little interest by insurance companies to develop such plans. The barriers to keep insurance companies from venturing into this new market territory have been significant. Likewise, consumers have not been vocal in demanding the option of purchasing interstate health insurance. Lack of substantial endorsement from the providers and purchasers of health insurance raises the question of whether demand for such an option exists. The concept of a national health insurance marketplace is built on the idea that if such a plan existed, people and insurance companies would rush to participate in it; however, there is a paucity of evidence to support this notion, and it is unclear whether such a system would deliver on the promise to increase options for quality products at lower costs. 
History and Background
The concept of buying and selling health insurance across state lines has been discussed for many years. More than 70 years ago, Congress passed the McCarran-Ferguson Act, which gave states the power to regulate health insurance within their borders.1 Prior to 1945, the sale of health insurance was not considered commerce and as such was beyond the scope of federal legislation.2 Large employers, especially those with more than 500 employees who self-insure or are self-funded, are not bound by state regulations but are instead governed by the Employee Retirement Income Security Act.1 Health savings accounts and associated high-deductible plans are also exempt from many state regulations. Approximately 47% of US citizens receive health insurance through their employers, and 39% are covered by Medicare and Medicaid. The policies most affected by proposals to sell health insurance across state lines would be individual insurance plans purchased outside the context of employer-sponsored plans, which would affect approximately 15% of US citizens.3 
Each state is authorized to develop its own system for regulating the health care industry within its borders, which has resulted in a “patchwork quilt” of 50 varying state policies. There are similarities between many state regulations, such as requirements for financial solvency and ratings of insurance carriers. However, there are significant differences among state policies concerning the regulation and oversight of the policies being sold, consumer protections, minimum coverage requirements, mandated benefits, and requirements to offer or continue coverage.4 State mandates for coverage vary widely—from as few as 17 in Idaho to 70 in Rhode Island.5 Some state plans require insurance companies to cover services such as acupuncture, hearing aids, hairpieces, and fertility treatments. Consumers might not want to purchase all of the mandated services required by their state, but they do not have the option to purchase health insurance from a state with fewer mandated benefits. Mandates can increase the cost of premiums by 30% to 50%.6 
Lower Cost and Increased Access… Or a Race to the Bottom?
Proponents of sales across state lines believe that varying state rules and regulations create substantial barriers to competition, resulting in decreased access to affordable health insurance for consumers. Selling insurance across state lines would create a national market, which would provide increased choices for consumers, encourage competition, and, ultimately, lower costs for everyone. The development of a national interstate health insurance marketplace has become a highly political issue and has been endorsed by many Republicans, including President Donald Trump and Speaker of the House Paul Ryan. The Cato Institute supports the concept and believes that it could reduce insurance premiums by 13%.7 The Heritage Foundation also supports the idea, believing state-led health initiatives can spur innovation, decrease cost, and increase competition.8 
Opponents cite that health care is, by its nature, a local service, and the process of setting up networks of health care facilities and providers across state lines is costly and makes selling plans across state lines highly impractical. State regulators have the ability to develop policies to regulate and oversee plans sold within their borders. The National Association of Insurance Commissioners feels that deregulation could result in an eroding of consumer protections offered by state policies.9 If interstate plans were developed, there could be a “race to the bottom,” in which insurance companies would choose to operate out of states that had the least restrictive regulations, resulting in plans with minimal coverage and fewer consumer protections. Families USA cited concerns about decreased consumer protection, deregulation of the health insurance industry, a proliferation of lower-quality insurance plans, and segregation of the risk pool.10 People who would select minimal-coverage plans would likely be younger and healthier than people in need of more comprehensive coverage. The overall risk pool could become segregated, resulting in increasing costs for older and sicker persons who need more comprehensive policies. Health insurance organizations have been fairly subdued in their endorsement of proposals to sell across state lines. America's Health Insurance Plans, the lobbying agency for many private insurance companies, has not endorsed selling health insurance across-state-lines, and neither has the Blue Cross Blue Shield Association.11 Critics express concerns that selling health insurance across state lines might ultimately decrease competition, as such a system would be a disadvantage to companies that offer more than basic coverage.4,12 
State Experiences With Proposals to Sell Health Insurance Across State Lines
Individual states already have the authority to decide whether they will allow the sale of health insurance across their borders and to determine the circumstances under which they would do so. For instance, a state may allow such a policy on a limited basis, such as a policy purchased from a neighboring state. States can choose what regulatory and administrative functions would remain under their jurisdiction. In addition, the ACA and some state governments have already enacted legislation to allow for the creation of interstate compacts. States that choose to participate in a compact together can create a set of rules and regulations to govern the sale of health insurance within the compact and then choose to adopt the legislative and regulatory standards of one state or develop a new set of mutually agreed-upon standards.4 
In 2008, Rhode Island was the first state to pass a law authorizing the purchase of out-of-state health insurance, and since then, similar legislation was enacted in a number of other states.1 Each state's experience was unique, but there have been similar outcomes and common challenges to the implementation of such plans. The experiences from these states are important, as any federal plan to promote a national marketplace for the buying and selling of health insurance is likely to face similar obstacles. 
Kentucky conducted a feasibility study to look at the development of a compact with its 7 contiguous states.4 Insurance regulators from Kentucky communicated with regulators from these states and, ultimately, determined that significant barriers existed to developing such a compact. Most of the roadblocks centered on the variable mandates between the states, how each state's consumer protections would be maintained, and how they would address problems related to a consumer and their policy. Washington State conducted a feasibility study, which concluded that multistate compacts to regulate health insurance were not likely to be successful. The study stated that to be successful, interstate compacts require “consensus and champions” and must be built on a level playing field regarding the costs of health care goods and services. Because health care delivery costs are based on local factors—such as population demographics, provider networks, and availability of services—creating a leveling of prices is extremely difficult. The report concluded that the administrative costs of developing such a system would outweigh its benefits.4 
Wyoming passed legislation authorizing policies across state lines in 2010. Shortly thereafter, the Wyoming insurance commissioner contacted surrounding states to pursue developing such policies but was unable to find a state interested in creating an interstate market.4 Wyoming has some of the fewest required mandates; therefore, state officials speculated that other states might have interest in engaging in a compact with Wyoming as a primary state. This interest did not materialize, however. 
Georgia enacted legislation across state lines in 2011 and had a similar experience—regulations were developed guiding insurance companies on how they could develop and implement such plans, but 1 year later, no insurance company had entered the market to sell insurance policies across state lines.4 Officials opined that there was a lack of consumer demand for such products.4 Maine and Rhode Island also experienced similar results after passing their states’ legislation to sell health insurance across state lines. 
Discussion
Despite the projected interest, there has been a muted response from insurers to develop interstate policies, and consumer demand for them has been low. States have cited common challenges: 
  • Networks—The development of a successful health insurance plan is contingent on having a robust network of local providers and facilities, and developing such a network for an out-of-state insurance company is both costly and time-consuming. In addition, it is difficult for insurers to competitively negotiate insurance contracts in a region where they are not currently operating.
  • Authority—A fundamental challenge with interstate insurance policies centers on who will have regulatory authority over them. States have the authority to oversee the policies bought and sold within their borders, and each state policy has its own unique characteristics. Many state regulatory agencies have expressed reluctance in ceding that authority to another state, and how states will be able to enforce such regulations across state lines is unclear. If a consumer raises a concern about an insurance policy that is domiciled in another state, who will have the authority to investigate it? Or if an insurance company is found to be in violation of a state policy, how will a potential customer in another state be aware of such concern?
  • Complexity—By its very nature, health insurance is a highly complicated enterprise, and it operates under a regulatory structure that is different from other forms of insurance. Health care delivery is provided through localized networks made up of local providers, hospitals, and agencies. When compared with other types of insurance that are currently able to be purchased across state lines, health insurance is much more complex, and many have cited this complexity as being a major deterrent to the establishment of a system for selling policies across state lines.
At the present time, the development of a national marketplace for buying and selling health insurance seems unlikely to occur soon. Even if further legislation is passed that allows for and encourages such proposals, there is little evidence to suggest that insurance companies will begin to offer such insurance. For a national health insurance marketplace to become a viable option, the barriers to implementing proposals to sell health insurance across state lines will need to be addressed. If incentives are created to encourage insurers to develop such policies, then perhaps companies might be more interested in investing the resources to do so. If concerns pertaining to insurance regulation between states are addressed in a manner that decreases the regulatory burden, then insurers might be more willing to offer policies in a less cumbersome environment. However, deregulation has the potential to compromise consumer protections, so the development of a minimal set of consumer protections is crucial. A national health care marketplace should strive to balance the need for access to affordable health insurance for all US citizens while maintaining adequate quality standards and consumer protections across all policies being offered. 
Acknowledgment
Special thanks to Nancy Cooper for contributing her time and expertise to this manuscript. 
References
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