COVERAGE: Into the Wild? The Likely Impact of Selling Insurance Across State Lines
Residents of Madison County Florida, one of five dry counties in the Sunshine State, can drive across state lines into Georgia to purchase alcohol. Shouldn't they also be able to purchase health insurance from Georgia, or any state that meets their needs?
Health care, however, is not a normal commodity (like bourbon?), and purchasing health insurance across state lines would not be the panacea some claim it to be, (unfortunately, also like bourbon).
Proponents of allowing insurance companies to sell their products across state lines have claimed it will lower costs and expand access by removing "unnecessary" regulation. A new paper released by the New America Foundation, however, makes clear that proposals to sell insurance across state lines would not work as advertised.
For example, proponents of selling health insurance across state lines believe the costs of health insurance can be reduced by allowing firms to relocate to states where they are not mandated by state regulation to include certain benefits (i.e. maternity coverage or emergency care) or sell plans to anyone who applies (guaranteed issue).
Yet, the CBO estimates that benefit mandates account for only a small portion of the costs of health insurance premiums. Texas estimated its own benefit mandates accounted for zero to three percent of small group premiums. A survey in California found that it's 44 mandated benefits it accounted for no more than 4.8 percent of premium costs. As the Wonk Room's Igor Volsky writes: "insurance companies lose money covering serious illnesses, not complying with benefit mandates."
Furthermore, insurers operating in guaranteed issue states would find it difficult to compete in a world where insurers were allowed to sell accross state lines. The number of guaranteed issue policies would decline and the price of those available would rise considerably.
The alleged savings, from such accross state lines proposals, come not from dropping benefit mandates but by creating a marketplace that promotes even more risk selection and market segmentation than currently exists. If insurance is allowed to go the way of the credit card industry, those who are healthy and are seeking the most basic coverage may be able to find lower premiums, but the rest of Americans would likely face higher costs and reduced access to care. This de facto deregulation undermines the essence of comprehensive health insurance. While most of us feel healthy on a given day, we all get sick eventually. Insurance isn't about servicing current needs, it's about a covering future risks. Pooling those risks is what helps make insruance affordable for all of us. Snatching up young and healthy customers may be profitable for some insurers, but it's unpalatable for most of us.
Tomorrow, we'll look at some of the impact of across state lines proposals would have beyond insurance market regulation, spefically relating to market competition and the employer tax exclusion.