As Congress focuses on major health care reform to replace the Affordable Care Act, Republican congressional leadership will recommend eliminating the restriction that allows insurance companies to sell only in the states where they have obtained license from the regulatory authority.
This regulatory authority was granted to the States in 1945, when the U.S. Congress passed the McCarran-Ferguson Act declaring that the federal government could not regulate the business of insurance, which made the insurance industry subject to state laws and regulations. In the years since McCarran-Ferguson, state regulations have diverged greatly, creating vastly different regulatory environments, and insurance companies have adapted to suit each state’s unique regulatory framework. The differences in insurance coverage available for each American were magnified when Congress adopted the Employee Retirement Income Security Act of 1974 (ERISA). A provision within ERISA removed from state control insurance plans offered by employers. Thus, a further dichotomy among health insurance regulations was created as small employers became subject to different, and often more expensive, regulations within each state than self-insured employers.
During his campaign, President Donald Trump called for an “Across State Lines” proposal to encourage competition, provide consumers with greater choice of individual plans and lower costs. Obamacare has done little to slow the growth of health care costs. Government actuaries project that health spending will grow 5.8% per year over the next decade, which is substantially faster than growth in the economy.
After Trump’s election, his presidential transition website highlighted this proposal as part of the new administration’s health care alternatives to the Affordable Care Act. Echoing portions of Speaker Paul Ryan’s A Better Way health care policy paper, President Trump’s concept eliminates detailed state insurance regulations, thereby allowing insurance companies to offer national plans with lower premiums and reduced administrative costs. According to advocates, this change would expand consumers’ choices as well as generate lower premiums and out-of-pocket costs.
There are many potential benefits to the “Across State Lines” proposal, as well as some potential drawbacks. Selling insurance across state lines would allow consumer to find a policy that better covers their individual needs. For example, benefits required in one state like drug rehabilitation, fertility treatments, or acupuncture may not be available in other states. Consumers in states where coverage for these services is mandatory may not want to pay for these unwanted benefits, while consumers in neighboring states may not be able to obtain these benefits at all. By granting consumers the freedom to shop for the benefits they desire, the marketplace will enable individuals to signal to insurers and states what benefits they actually find valuable. Secondly, interstate health policies will provide greater competition in the health insurance market, theoretically making premiums more affordable. Currently, in many states, a small handful of insurance companies dominate the individual health insurance market and dictate pricing, so this provision would allow consumers to shop broadly for cheaper policies. In addition, opening state borders would lessen the inequalities between small and large employers by making insurance more affordable for small businesses.
However, one of the potential concerns with the “Across State Lines” proposal is that insurance companies could establish national policies in states with little to no regulation and then offer low-cost plans with little coverage to predominantly healthy people. Thus, consumers might purchase the least comprehensive policies because they would be cheapest, without realizing the policy doesn’t provide the protections they may need if they become sick. In addition, state insurance regulators are generally opposed to the concept because of questions over which state would have regulatory authority and be responsible for consumer protection. There also are concerns that consumers would find it difficult to resolve insurance disputes with officials across the country. One other potential challenge to allowing insurance policies across state lines is a practical concern. Any insurer entering a new marketplace has to sign contracts with providers and hospitals in that state to offer those services. Even in states where insurance companies have a presence, it is difficult for them to get providers and hospitals to sign these contracts.
It is likely that allowing insurance sales across state lines would give consumers more coverage options at more affordable prices. However, to achieve this goal, President Trump’s health policy team must devise strategies that will appease state regulators, hold insurers accountable if they gain the freedom to select their own regulators, and ensure that consumers retain at least minimal protections. Policymakers must evaluate the potential benefits and drawbacks of allowing interstate insurances sales in order to determine if it would be an innovative alternative to the ACA.
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