COVERAGE: Into the Wild? Incomplete Solutions for Selling Insurance Across State Lines

Earlier this week, we blogged on a recent policy paper from the New America Foundation examining the impact and danger of selling health insurance across state lines. On Monday, we noted the de facto deregulation created by such a proposal would lead to lead to higher premiums for many Americans, decreased benefits and less access to care. On Wednesday, we argued such a proposal would promote competition based on aggressive underwriting, not improving value. Furthermore, sellining insurance across state lines while also removing the employer tax exclusion, without also making significant market reforms, would exacerbate the situation.

Today, we'll look at high risk pools and guaranteed renewal, which some proponents of selling insurance across state lines claim would help mitigate some of the inherent problems of the proposal.

More than 30 states in the U.S. operate high risk pools, which are designed to provide coverage for individuals who are denied coverage in the private market and have exhausted all other options. But they do so for only a very small portion of Americans (about 200,000 nationwide) and at a much higher costs (as much as 200 to 250 percent higher than the premiums in the individual market). Oklahoma Commissioner of Insurance, Kim Holland, put it best, in her recent testimony to the Senate Finance Committee:

High-risk pools have been created in many states to help address the issue of the ‘medically uninsurable,' but they are often under-funded and can lock people into limited, but expensive, coverage choices. In Oklahoma, our high risk pool has facilitated insurers' ability to cherry-pick the very healthiest, shifting risk to the pool.

Basically, without an exceptional amount of funding, high risk pools would not remedy across state line proposals because such proposals, in effect, encourage insurers to maximize underwriting, putting insurance out of reach for many more Americans.

Others have argued that requiring insurers to renew policies (guaranteed renewal) would help limit some of the aggressive underwriting that undermines the viability of across state line proposals. The problem is that in practice even with guaranteed renewal laws insurers find ways to siphon off the healthy. They do this by raising the premiums for everyone covered by an existing policy and offering a "new" product, with essentially the same benefits but lower price, which is only available the healthiest customers (who can now be selected through underwriting because they're buying a "new" policy not renewing an old one).

The authors of the New America tudy do note, that a modified across state lines proposal could benefit all Americans, but only in the context of:

1. Guaranteed issue and low income premium subsidies or adequately funded high risk pools
2. Federal licensure and regulatory oversight of insurers.

Without these additional reforms across state line proposals would not meet the needs of a 21^st Century business model—one that prioritizes coordinated, high-value care over underwriting and marketing.