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Getting serious about health reform, part one

Selling health insurance across state lines is one of the central planks of the GOP’s plan to replace ACA.  Intended to foster competition and reduce costs, the idea is the more insurers competing for customers, the lower the price and better the product. And by eliminating the requirement that insurers comply with state mandates, costs would be lower because some services, conditions, and treatments would not be covered

In addition to these issues there is one real example that should sharpen our thinking.

Today three states allow citizens to buy insurance offered by out-of-state insurers. Maine, Wyoming, and Georgia have all allowed this for over a year, yet no out-of-state insurers are offering plans in those states.

the question is why?

Folks advocating this idea base their view that selling coverage across state lines will reduce costs by eliminating mandated benefits, which some think would reduce costs 30-50 percent.

That view reflects a lack of understanding of the cost drivers in health insurance, the primary driver being – you guessed it – the cost of medical care.  While mandates do influence costs, the underlying cost of insurance is the cost of care. And health care just costs more in Portland Maine than it does in Boise Idaho

There’s another concern that hasn’t been broached, perhaps because it is politically charged. States have significany regulatory authority over benefit design and mandates. Allowing the sale of non-compliant insurance in a state may well be anathema to those strongly supporting state sovereignty.



10 thoughts on “Getting serious about health reform, part one”

  1. That phony belief has been out there for decades. What mostpeople don’t realize is that rates can fluctuatee by 50 percent in a state. In fscr one side of thr street can cost 30 per cent more than the othet side
    The other part of that myth is tjay the pricrs ate overstatedted. Most are rounded up and havent been updated. Some mandates actually save money

  2. You are absolutely right. I would add that creating a new insurer is hard and few new competitors will arise.. Look at the struggles of Oscar or the failure of coops. I know of few investors who will choose to fund new insurers – the amount of upfront capital needed is daunting.

  3. Hi Joe. One of the primary reasons why insurers are not offering coverage across state lines is, that just like in the workers’ compensation world, each health insurer requires a broad network of competitive contracts with providers and hospitals. There are very few remaining competitive privately owned health PPOs and contracting with those PPOs, will add to the expense line of the insurer who wants to sell across state lines. The few new insurers did contract with existing PPOs networks, others are trying to build networks of their own, but it takes time, even though these new insurers are mostly selling narrow networks. There may also be non-compete agreements that prevent carriers from competing against sister companies, and the existing carriers are not likely to lease their networks to a competitor.

  4. Great point Steve. Perhaps they could focus more on price than access. The networks work well enough but the price point on healthcare services is exorbitant.

    1. They certainly should concentrate on reducing healthcare prices. The only quick way to gain entry to a state and attempt to do that is access to an existing PPO network, which has already negotiated prices with hospitals and doctors. It would take them too long to negotiate with all of the hospitals and doctors they need in network. Furthermore, the hospitals and doctors typically provide the lowest price point to the carriers with the largest population of insured lives. These new players, with no existing insured lives have no bargaining power. One of the causes of increasing healthcare costs, is the consolidation of providers. Large multispecialty groups are buying the competing providers around them. Hospitals, which have seen a decrease in inpatient care, are buying freestanding practices, radiology groups, ASCs, and other hospitals again creating monopoly in certain regions, and then in both cases will increase their contracted rates with the carriers and PPOs.

  5. I think we just need to leave this ‘insurance’ box and move on! Since its only 6% of the marketplace this should not be that difficult. Yes, it will break some nice feed troughs for the entrenched; just embrace the change. I remember telling the Managed Care reviewers that would come into our hospital that there was no such thing as Managed Care, you either Manage or you Care, and you cannot do both. They would get hopping mad; I suppose the truth hurt!

  6. Agree with Steve. Insurance is so Regional or very state specific – even more so state specific. If I live in IL and buy BCBS of Wyoming, Wyoming BCBS does not have a provider network in IL. So it is dead in the water from day one. Commercial carriers have a hard enough time managing their state network. How would they manage a national network. Yes there are a few national players, but those are still tightly managed at the state level.

    1. Sorry Jeff they do its the local Blurs plan.they shste tjrir networks got a fee of course. Unfortunayely Blues Charter prohibits them from msrleting across ststr lines

  7. selling insurance across state lines was a big deal when a few states had guaranteed issue (NY, NJ,MA), while other states had full underwriting.

    In that environment, a healthy young male could save big bucks in an underwriting state.

    But if all states have guaranteed issue, which they have since 2010 and are likely to have under Trump, the differences are minor. No other mandate has the effect of guaranteed issue.

  8. I agree with the fact that one issue is resolved as a result of guarantee issue, but the carriers in other states cannot offer coverage in another state until they figure out how to pay medical providers. Carriers and self insured payors are experimenting with new payment methodologies, but they are not there yet. Until these payors begin paying providers in a manner different than per PPO contracts, selling across state lines will be impossible.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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