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Across State Lines Explained: Why Selling Health Insurance Across State Lines is Not the Answer

Published:   October 8, 2008

Selling health insurance across state lines would not work as advertised and would make it harder and more expensive for many Americans to access health coverage, according to a new report released today by the New America Foundation.

The New America report, entitled, "Across State Lines Explained: Why Selling Health Insurance Across State Lines is Not the Answer," found that under across state lines proposals premiums would increase for many people, health insurance benefits would become less generous, and more Americans would likely become uninsured over time. 

"Selling health insurance across state lines would have a devastating impact on the health insurance marketplace and will not work for many Americans.  This approach fails to introduce the incentives necessary to move insurers to a 21st Century business model that prioritizes care coordination and high value care over marketing and underwriting," said Len M. Nichols, Director of the Health Policy Program at the New America Foundation and coauthor of the report.

"In fact, selling health insurance across state lines represents a step backwards not only for the health insurance marketplace, but also and more importantly for the American people who struggle everyday to secure quality, affordable coverage," Nichols continued.

Proposals put forth by several Members of Congress and Republican presidential nominee Senator John McCain, include provisions that would allow Americans to buy and insurers to sell health insurance across state lines. 

Across State Lines Explained: Why Selling Health Insurance Across State Lines is Not the Answer

What does it mean to allow insurers to sell coverage "across state lines?"

Insurers could sell their products to Americans in any state. The insurer would have to follow the rules and regulations in the state where it is based or "domiciled" - not the rules of the state where the consumer or policyholder lives.  Allowing the state laws chosen by the insurer rather than the laws of the state where the consumer lives to govern health insurance regulation is what makes this policy so controversial.

How would selling insurance across state lines impact...

  • Premiums? Health insurance premiums may decrease for many young, healthy individuals.  Yet, premiums would like go up for many other Americans, especially those people with health conditions or individuals who prefer comprehensive insurance policies.
  • Benefit Mandates? Most benefit mandates would be eliminated by an across state lines proposal.  In fact, selling health insurance across state lines would eliminate any guarantee that important benefit mandates like maternity care would be included in insurance packages in the future.  Consumers would get little in exchange - overwhelming evidence shows that benefit mandates per se are not why health insurance costs so much.
  • Access to Coverage?Many people would find it more difficult to access health insurance if health insurance were sold across state lines.  This is because there would be fewer guaranteed issue policies and because insurers would have an increased incentive to deny people coverage and charge people more based on their health history.

How would eliminating the tax preference impact the effects of across state lines?

Eliminating the employer tax exclusion would exacerbate the consequences of an across state lines marketplace.  Fewer employers would offer coverage and millions of Americans would have to find coverage in the virtually unregulated individual insurance market.  Individuals transitioning from the employer-sponsored system to the new market would face higher premiums based on their health history and insurance policies that lack many benefits regularly covered by employer-sponsored insurance.

Would high risk pools mitigate the consequences of selling insurance across state lines?

High risk pools that are not exceptionally well funded do not make an across state lines health insurance marketplace work for all Americans.  This is because across state lines proposals encourage insurers to underwrite aggressively, which would lead to millions of people being denied coverage and facing higher premiums based on their health history.

How do you make an across state lines market work for all Americans?

A modified across state lines proposal could benefit all Americans in the context of 1) guaranteed issue and low-income premium subsidies or sufficiently funded high risk pools, and 2) federal licensure and regulation of insurers.

For more information visit our blog at www.newhealthdialogue.org or contact Elizabeth Carpenter at carpenter@newamerica.net. A summary of the report is also available.

 

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