Selling Insurance Across State Lines

President Donald Trump said that by allowing insurers to sell plans across state lines, “your premiums will be down 60 and 70 percent.” We couldn’t find any study supporting such a decrease, and experts we consulted disputed the idea that overall average premiums would decline significantly.

The president made the claim in his remarks before a luncheon on July 19 with Republican senators to talk about legislative efforts to repeal the Affordable Care Act.

Trump, July 19: [C]ross state lines, where you have — where it’s almost impossible for insurance companies to compete in different states. … We’re putting it in a popular bill, and that will come. And that will come, and your premiums will be down 60 and 70 percent. People don’t know that. Nobody hears it. Nobody talks about it. … We’re going to have to cross state lines … and you’ll have insurance companies bidding, you’ll have forms of insurance that you don’t even know about right now, because that’s the way it works. There’s going to be tremendous competition.

We asked the White House for support for the president’s claim, but we did not receive a response. We reached out to health care experts, and they knew of no study or analysis backing up Trump’s 60 percent or 70 percent figures — nor could they point to any other studies giving estimates for the impact on premiums.

In a “myth vs. reality” fact sheet, the National Association of Insurance Commissioners — a support organization established by the country’s state insurance regulators — said the idea that cross-state sales would bring about lower premiums was a “myth.” The reality: “Interstate sales will start a race to the bottom by allowing companies to choose their regulator,” allowing insurers to target the healthiest consumers. “While those individuals in pristine health may be able to find cheaper policies, everyone else would face steep premium hikes if they can find coverage at all,” the NAIC wrote.

Allowing insurers to sell policies across state lines — on the individual market, where those without employer plans or government plans like Medicaid buy their own coverage — has been a popular proposal among Republicans for some time. As the president mentioned, the idea is that it would promote more competition to bring down the prices of policies. It would cut down on state insurance regulations, as insurance companies would choose to sell policies out of states with fewer regulatory requirements.

In 2008, Sen. John McCain included the policy in his health care plan as he campaigned for president, saying it would “provide more choices of innovative products less burdened by the worst excesses of state-based regulation.”

That, of course, was before the Affordable Care Act, when states varied widely in what they required of insurers on the individual market. But the ACA enacted countrywide minimum benefit standards, limits on out-of-pocket spending, limits on how much premiums could vary based on a consumer’s age, and requirements that insurers not use health status to price premiums or reject anyone, among other regulations.

Trump talked of making the cross-state policy separate legislation from a repeal of the ACA. The recent GOP health care bills in the House and Senate both included provisions giving states the ability to change or drop some of the ACA regulations, but the Senate is now set to consider repealing the ACA with a two-year delay.

The ACA did include a provision allowing insurers to sell policies across state lines, but states would have to enter into “compacts.” And the Obama administration never issued regulations establishing how those compacts would work. The Department of Health and Human Services would have to approve the cross-state sales, a February 2017 brief from the National Academy for State Health Policy explains. Five states have passed laws allowing interstate sales — with three of them doing so after passage of the ACA — but no insurers have entered new markets under those laws.

Impact on Premiums

So, if insurance companies could sell individual market plans across state lines, and state regulators didn’t have to follow ACA requirements, would “your premiums” go down “60 and 70 percent”?

Experts cited several reasons that the across-state-lines idea wouldn’t be a cure for high premiums as the president implied.

Joseph Antos, the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute, wrote in a Feb. 26, 2016, post on the think tank’s website that even with giving states regulatory authority, “one should not expect interstate sales to significantly reduce the cost of health insurance.”

Why? Primarily because the costs of health services are local. Medical services are more expensive in places like New York City or San Francisco — like virtually every other commodity — than they are in, say, small towns in Ohio, or even other areas of New York and California.

Antos, who was on President Ronald Reagan’s Council of Economic Advisers and held other positions in the Office of Management and Budget and the Department of Health and Human Services, told us in a phone interview that more regulatory flexibility “could reduce premiums to some extent,” but insurers are still locked into the costs of health services in a given geographic area. The “price of insurance is driven not by the cost of health care in the state where the insurer is legally domiciled,” Antos said, but rather in the state where the customer lives.

So a cheap plan in an inexpensive locale would still have to be priced higher if sold in a high-cost area.

Linda J. Blumberg, a senior fellow at the Urban Institute’s Health Policy Center, told us that some people could see a drop in what they pay for premiums on the magnitude Trump claimed, if insurers significantly curtailed benefits. But other people — those who want or need to buy comprehensive policies — could see dramatic premium increases.

This is the “race to the bottom” that the NAIC cited in its “myth vs. reality” paper.

In states with unregulated markets, “you could create a situation where you are selling very low-priced policies to healthy people without much [insurance] protection whatsoever,” Blumberg, who was a health policy adviser to President Bill Clinton’s administration, said in a phone interview. “But that ignores the fact that … what you’re doing is driving up the premiums to impossible levels” in states that want to have insurance regulations.

It’s a “risk-segmentation strategy,” she said, where eventually the healthy people are pulled into one set of plans and those with health problems are left in another. Premiums would go up so much in states with regulated plans that it would become impossible for them to sustain those regulations.

That’s one reason state regulators don’t like this idea, says Blumberg, because “no state regulator wants … to be undermined by rules in another state.”

Antos wonders how much insurers could possibly strip down their policies. They could reduce some benefits, but it “would also have to be something people want to buy,” he said. And excluding certain benefits, like mental health benefits, wouldn’t reduce premiums by much.

It’s difficult to know what would happen, Antos said. If an insurer were to drop all inpatient services, for example, the premium would be a lot cheaper. “But who would buy it?” he said.

Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms, said that the lion’s share of a premium is the money a plan has to pay for medical claims, as well as utilization. Selling insurance across state lines wouldn’t change the price of medical services — as Antos said — but if insurance companies could deny coverage or charge more for health conditions, a carrier could “push down on utilization by screening out sick people” and then, “they can charge a lower premium.”

“You could start to see dramatically different premiums” between regulated and unregulated states, Corlette said, echoing Blumberg’s comments.

A September 2016 study by RAND Corp. researchers looked at the impact of Trump’s health care campaign proposals, including selling policies across state lines. It didn’t provide estimates for the impact on premiums alone, but said that out-of-pocket costs would increase on average for individual market enrollees if the ACA were repealed, and increase even more if only the across-state-lines policy were added. But that doesn’t account for any tax credits, which presumably would be part of a larger ACA-replacement package.

Evan Saltzman, one of the authors of that report, told us that he didn’t think it was a stretch to say premiums would go down by allowing insurance to be sold across state lines. But a 60-to-70 percent drop seems “a little unreasonable.”

“Maybe a 21-year-old would see that kind of decrease, but a 64-year-old might not,” he said.

Then there’s the question of how much insurers want to sell plans across state lines. Insurance companies build networks of doctors and hospitals in a given area to provide discounted pricing. The ACA has highlighted the fact that insurers are able to reduce premiums by offering plans with narrow networks.

Aetna CEO Mark Bertolini told CNBC in late January that an across-state-lines proposal was past its prime: “Quite frankly, the idea of selling insurance across state lines is a dated concept. Insurance products are now tightly aligned with networks, and so buying an insurance product from another state that’s tied to a network in another state really doesn’t work for people seeking care.”

In fact, Corlette found that a “significant barrier,” more so than regulatory environments, to insurers entering a new market was ” the enormous difficulty that out-of-state insurers face in building a network of local providers.” In a 2012 report for Georgetown’s Center on Health Insurance Reforms, Corlette and her co-authors interviewed government officials and insurers in the handful of states that have enacted laws regarding cross-state insurance sales. As we mentioned, no insurer had entered a new market due to those laws.

The American Academy of Actuaries outlined all of the concerns we’ve covered here in a February brief. On provider networks, the professional association said: “Any cost savings resulting from differences in benefit coverage requirements among states can be small compared to cost savings that can be accomplished through negotiating strong provider contracts. Unless they are able to achieve a large enrollment, out-of-state insurers may have difficulty in negotiating with providers.”

The NAIC cautioned in a Jan. 24 letter to GOP leaders in the House of Representatives: “We continue to see proposals that would preempt state licensing requirements and, thus, consumer protections by allowing sales across state lines by federal edict, without proper discretion for the states to form compacts between themselves.”

Saltzman, co-author of the RAND study, said there’s also “selective entry” within states, where, for instance, Los Angeles has a lot of insurance competition but rural areas of the state don’t.

He said, and other experts agreed, that it’s very difficult to model an across-state-lines policy. The appendix to his September 2016 report noted that this was “particularly challenging given the lack of available data on insurer entry decisions and strategic behavior.”

It remains to be seen if a federal across-state-lines policy is politically, and practically, feasible. And since it hasn’t been tried, we don’t know exactly what impact it would have. But we found no evidence for President Trump’s contention that under such a policy, “your premiums will be down 60 and 70 percent.”

Editor’s Note: More articles about the 2017 health care debate can be found here.