By Kim Macdonald, Class of 2018

Selling Health Insurance Across State Lines—A Summary

Currently, health insurers are restricted to each state for purposes of regulation. One primary health reform proposal is to allow insurers to sell health insurance to out-of-state markets. Proponents argue that removing the state line restrictions will encourage competition, increase consumer choice, and, therefore, offer national plans with much lower premiums as determined by the market. By providing people with more options, in theory, consumers can choose the plans that provide only the benefits they need without paying for superfluous benefits.  Critics argue that allowing interstate sales of insurance will instead provide a mechanism for insurers to choose their regulator, sparking a “race to the bottom” for the states with the least restrictive regulations. In turn, removing the barriers to selling health insurance across state lines may encourage states to have less restrictive regulations to attract health insurance companies.  Removing these restrictions would likely benefit the young, healthy policy holders, resulting in lower premiums because they do not rely on regulations to cover their needs. By contrast, fewer regulations could harm older and sicker policy holders who depend on the coverage restrictions to qualify for sufficiently robust policies.

Additionally, critics argue interstate sales of health insurance would decrease the availability of policies per state, since insurers have to compete on a national market rather than a regional or state-wide market. Some critics are concerned the proposal undercuts states’ role in regulating insurance, which, counterintuitively, may increase the necessity of the federal government to further regulate the market to ensure basic minimum standards.

Insurers would also have to grapple with the difficulty of setting up a network of providers and entities without being in-state.  Insurance costs reflect the general health of an area’s population. Therefore, while one policy may be affordable in one state due to its robust network of providers, lower cost of living, and overall health of the population, the exact same policy may not translate financially across state borders. Insurers face difficulties with selling “healthy state” plans to sicker populations in other states.