As part of his plan to reform American health care, President-elect Donald Trump has proposed what sounds like a simple enough idea: Allow health insurance to be sold across state lines.
Health insurance companies can already operate in multiple states, but they tailor their plans to each area where they do business. Trump’s proposal, a perennial favorite of Republicans, would instead allow, say, Anthem to sell the same plan in Maine, Kentucky, and any other state it chooses.
Insurers would be freed from complying will all the different insurance laws in each state, encouraging states to reduce cumbersome regulations, the thinking goes. Increased competition would in turn give consumers more options and therefore reduce prices.
Trump put it this way during his campaign:
“As long as the plan purchased complies with state requirements, any vendor ought to be able to offer insurance in any state. By allowing full competition in this market, insurance costs will go down and consumer satisfaction will go up.”
Maine has already tried this. Not a single insurer took us up on the offer.
A law passed in 2011, called PL 90, allowed insurers from other states to sell their plans in Maine. The state’s Bureau of Insurance even reached out to major insurance companies that weren’t offering plans in Maine to tell them about the law and encourage them to do business here.
It received no responses, according to a bureau spokesman.
Maine wasn’t alone. Two other states — Georgia and Wyoming — also allowed the interstate sale of health insurance. No takers there, either.
Granted, Trump’s proposal is different, aimed at allowing sales of health plans across all 50 states instead of just a few. And he has released no specifics about how it would work. But Maine’s experience reveals some of the problems with this general approach.
First, let’s be clear that this proposal would likely affect a minority of Maine residents. Large employers that use their own funds to cover employees’ health expenses, rather than contracting with an insurer, are exempt from these state regulations. So that leaves out workers at big companies such as Bath Iron Works, Hannaford and Wal-Mart. It also wouldn’t affect people with health insurance through the government (Medicaid and Medicare), which is roughly half of the insured population here.
Now, back to the pitfalls of selling insurance across state lines:
Insurers still have to set up networks. Those networks — made up of doctors, physical therapists, hospitals, pharmacies, etc. — are formed in each state to provide care for beneficiaries. That’s how insurers keep costs down, by negotiating lower prices with providers in their networks, which should lead to more affordable monthly premiums for consumers. Networks also allow insurers to select doctors and hospitals that meet certain safety and quality standards.
But networks are expensive to set up. Insurers have to pay lawyers to draw up contracts, spend time negotiating rates and so on. That’s part of why even in states with lax insurance regulations, you don’t see 20 insurers competing for business. Allowing the sale of insurance across state lines wouldn’t make forming networks any easier.
Health care costs vary from state to state. Health insurers set prices largely based on how much they expect to fork over to doctors and hospitals on behalf of their customers. But the cost of health care is inconsistent from state to state because of the relative age and health of residents and other factors. That’s reflected in different monthly premiums in each state.
Under Trump’s proposal, a wide swath of America’s population would presumably become the customer pool for health insurers. States with cheaper health care would likely end up subsidizing customers in other states such as Maine, where health expenditures are among the fastest-growing in the past two decades.
That could theoretically lead to lower premiums on average. But health insurers would have to grow even bigger to serve such a big customer base. Is that in consumers’ best interests? Just look at the separate bids by insurance giants Anthem and Aetna to merge with their competitors, which sparked antitrust suits by the U.S. Department of Justice.
Consumers could lose benefits and still pay more. Under the current system, insurers selling plans in Maine must be licensed here.
Insurance regulators fear they’d have no authority to help customers in their own states who bought health plans from companies based outside their borders. And insurers might rush to set up headquarters in states with the least burdensome regulations. That would allow them to sell cheap, bare bones policies in Maine, undermining the insurers who already sell policies here.
“Interstate policies would for the first time allow insurers unlicensed in the purchaser’s state to sell health insurance, which would otherwise be a criminal offense,” the National Association of Insurance Commissioners points out.
The association also warns of a “race to the bottom,” in which insurers cherry pick the healthiest customers in each state, who are the cheapest to insure. That would leave everyone else — the older, sicker and more expensive — to face steep premium hikes, if those people can even find a plan to cover them. State regulators, stripped of authority, could do nothing to stop insurers from hiking prices or from cutting benefits, the association notes.
Proponents point out that the proposals pushed by Trump’s pick for HHS secretary, Tom Price, and House Speaker Paul Ryan, R-Wisconsin, would require insurers to provide a minimum level of benefits in order for consumers who buy them to qualify for tax credits.
And Trump has said that health plans would have to comply with regulations in each state. But if that’s the case, it’s difficult to envision how the benefits of his proposal would be realized. They’re built, at least theoretically, on doing away with a lot of those regulations.
Even a champion of PL 90, the law that allowed interstate insurance sales in Maine, acknowledges that the practice could do more harm than good.
“It sounds kind of nice, and it’s easy to put on a bumper sticker,” said Joel Allumbaugh, who runs an Augusta employee benefit insurance agency and serves as a senior fellow at the conservative Foundation for Government Accountability. “It’s also fraught with complicated challenges.”
He points out that the timing of PL 90 also may have deterred more insurers from setting up shop here. The law coincided with passage of the Affordable Care Act, so insurers were grappling with a daunting new regulatory landscape, Allumbaugh said. Selling a few policies in Maine wasn’t at the top of their priority lists, in other words.
Compared to other states, the pool of people needing to buy their own insurance in Maine is small, older and not so healthy. That’s part of why cross-border shopping could prove disastrous here, said Andy Coburn, a rural health expert at the Muskie School of Public Service at the University of Southern Maine.
That’s been a problem in our market for years — well before the ACA, which boosted regulations, and PL 90, which eased them. Maine’s population isn’t exactly the most attractive to insure.
“If we have health plans coming in and picking off our young, healthy people with low premiums, bad policies, etc., it’s just going to exacerbate our problem in Maine,” Coburn said. “It’s a really terrible idea.”
Allumbaugh thinks shopping for plans across state lines could work, but many fundamental questions must be answered first, he said. Could insurers deny people with pre-existing health problems? Would the mandate to buy insurance still apply? Those are just some of the uncertainties remaining about Trump’s plan to overhaul the country’s health care.
“The potential is there, but there are a lot of intricacies that you don’t often hear them talk about in conjunction with talking about interstate shopping,” he said. “I’d like to see those two conversations come together.”