Why Buying Health Insurance across State Lines might Not be a Good Idea
Recent proposals about buying health insurance across state lines have sent many of us scrambling to check policies, and wondering whether such changes might mean it’s time to find a new insurer. After all, wouldn’t such a change open up the market and make it possible to get cheaper coverage?
Unfortunately, it’s by no means certain that such a change would be largely beneficial. In fact, it’s actually possible that the end result might be more expensive insurance overall, and that over time, more Americans would find health insurance too expensive.
What Does Buying Insurance Across State Lines Entail?
So what does selling coverage across state lines actually mean? Simply that an insurer could sell their product to any person in any state. Theoretically, this would mean consumers have a much greater range of insurers from which to choose, meaning increased competition and lower premium costs. However, there are some wider implications.
The fact is, such a change may end up benefiting only those who are young, fit, and healthy – people who are low-risk in the eyes of insurers, and who can have their pick of policies. Anyone who is moderate or high risk will eventually find that getting affordable insurance, or perhaps even any insurance at all, becomes much harder.
This may seem counter-intuitive. After all, surely opening up the market will mean everyone has a better shot at getting affordable insurance. The problem is, however, to an insurance company risk is still risk. The perceived risk of an individual who is fifty years old, overweight, and a smoker won’t decrease just because that individual can buy insurance anywhere in the country.
And if an insurance company can offer cheap premiums to entice low-risk people from all over the country, they’re that much less likely to continue offering any type of insurance to higher-risk individuals.
What this means is, it’s more likely that insurers will be encouraged to underwrite more and more aggressively, with cheaper premiums for those who qualify as low-risk. But those cheaper policies will provide increasingly skimpy coverage, meaning that people who prefer more comprehensive policies – as well as high-risk individuals – will find fewer companies are willing to offer the insurance they need.
Does this mean across-state-lines insurance can’t work? Not necessarily, but more thought is needed to produce a workable solution. Federal regulation of insurance companies might be a good start – and in fact, if insurance companies are allowed to sell across state lines, this might seem to be the most appropriate and logical solution.
Tags: coverage, health care, insurance, mccain, politics, state lines
February 14th, 2009 at 4:18 am
I believe that current health insurance programs simply do not work. They cost too much for increasingly poor care and by every prediction will only get worse.It is presumptuous that business people and government bureaucrats think they can “manage” health care better than those whose lives are directly at stake. Neither should we invade their privacy nor tell them how to spend their own money on their own health. It is their money, paid in premiums, taxes and salaries that are lower to accommodate their employers payment of premiums.Insurance was not set up to make a profit. It was created to reduce risk.When you graft profit motive to insurance the whole system goes out of wack.The health insurance should be run for the benefit of the INSURED, not corporate CEO’s.The people paying should be the ONLY beneficiaries.
September 25th, 2009 at 9:01 am
Another argument against the interstate commerce of health insurance is the idea that every state would be forced to have the same laws re: health insurance. This goes against the very idea of a republic and America is, after all, a republic.
I’m a proponent of opening up the interstate commerce of health insurance but some very slight and very careful Government regulations need to be set up to deal with the problems listed in the above article and my comment as well.
I HATE to advocate putting more power in the hands of the Government, but in this case it may need to be done.
October 7th, 2009 at 4:49 pm
Don’t fall for this typical straw-man argument. If you hear the “this may be counter-intuitive” statement, understand that it’s most likely bull-s**t. The concept of competition is simple. Supply and demand. If you supply a better mouse-trap (or health plan) for a better price, then buy it! If you find a better one, then switch!
If there is an insurance company that specializes in low cost insurance for healthy individuals, then by all means let them! If there is another that specializes in high-risk policies for a higher cost, then let them! Now multiply that times 100 or 1000 different companies all competing for the *limited* consumer and dollar base, and viola, you have a MUCH greater potential for real choice amongst providers.
Don’t let FUD (Fear, Uncertainty, Doubt) being promulgated by politicians and bureaucrats keep you locked in to what is a crappy, non-competitive system owned and regulated by government in the pockets of Big Insurance and Big Pharma. Deregulate and let the marketplace fight it out honestly for the consumer dollar.
October 13th, 2009 at 9:58 am
Brad’s “straw man” comment is most appropriate. The single point of the article above assumes the entire health care industry is made up of individual buyers. Anyone who works for a sufficently large company knows that they deal as a group of insured employees with the insurance company. And the concept of insurance is to spread risk…not make it non-existent. The article depends solely on FUD. I will throw my lot in for free market capitalism instead of the scare-mongering that is typical of the Left and their water carriers. As for Jessica and Tim, previously, their populist and statist solutions (mixed with some odd notions of a republic) are also wrong headed. “Profit” is not a dirty word and is seldom as rapacious as people make it out to be. You will find by looking at the balance sheets of Insurance companies that the OVERWHELMING costs that insurance companies incur are related to the paying of claims and the costs of conducting business according to the laws of each state and federal government.
October 17th, 2009 at 1:43 pm
Doctors waste enough time now fighting with the few insurance companies that are in their state. Add all the different regs. from many other out-of-state companies and the will have to hire more office staff to deal with them. And guess who will eventually pay for that?
October 21st, 2009 at 3:15 am
Unfortunately, people such at the author and more importantly Brad, fail to realize the concept of health-care mandates. Every state and the federal government mandate that insurance policies cover specific diseases, conditions, and prescriptions. Brad suggests the idea of “low cost insurance for health individuals.” However, no such policy exists because of state and federal mandates. These mandates require that every health insurance provider afford coverage to anything ranging from diabetes, asthma, birth control, and most health derivatives thereof.
So if you hear an argument [especially from Brad] that contemplates the logistics of a ” ‘this may be counter-intuitive’ statement, understand that it’s most likely bull-s**t.”
October 29th, 2009 at 2:31 pm
“Profit” is the dirty word. How about mutual insurance companies. They are non profit. For Profit companies are formed by investors who expect a return on their investment. They put up the capital to form the company. Across state lines. What about HMO’s which provide health services? They typically operate in quite restricted locations. What about the difference in the cost of health care in various parts of the country. Are the costs the same in New York as they are in California, Alabama, North Dakota, of Wyoming …..?
How does any system control for the difference in costs unless the write a policy for each area? Somebody do some real looking at what health insurance is. May be that federal regulation should replace the current state system, but it is not apparent how much of the bullxxxt would be relieved.
November 13th, 2009 at 8:12 pm
Hey, if you want it changed, then get off this and contact a Senator, or Rep and tell them you want it changed. Talking about it ain’t gonna fix it! The States are following Fed Law, it has to be changed at the Fed level to change at the State level. If everyone really wanted “Change”, then get up and do something about it. The only way we the people are going to get our “representatives” to vote the way we want them to vote for us is to tell them. It’s the all mighty dollar, they aren’t there because they just want to help us. Most of them couldn’t hold down a real job.
November 30th, 2009 at 5:39 pm
RS–is correct! Each of us, as individuals, not the collective, have the power to fix this. The more government is involved, the more mandates, the higher the cost in the end.
If this current legislation passes, prepare to find new doctors, because many currently practicing will quit, guaranteed. Then remaining doctors will be flooded–prepare to wait for long periods of time. And oh yeah, fewer physicians, will drive the price up even faster–remember, it’s supply and demand.
January 5th, 2010 at 1:21 pm
The author is simply pointing out possible implications of such a system. She clearly states that the system could work, but that we need to be aware of the risks. I also agree with Jerry Hawthorne that doctors and staff have ENOUGH complicated messes to deal with the way things are right now. Add in tons of out of state plans and doctors will have to hire an army of staff to deal with it. And like he said, that cost will eventually be passed on to clients.
This is most true for general practice doctors who are already paid way below market value in terms of the amount of school and debt they have to deal with to become a doctor in the first place. Many docs cannot afford to take any pay cuts (the millionaire doctor is a myth, that doesn’t happen anymore unless your a high end surgeon!) Also, don’t you want your docs to have more time being a better doctor and spending time with you, rather than having to deal with insurance companies all day?
The bottom line is that we need a public option. Will it be expensive, you bet, but we are just going to have to budget for it. Tons of money is already wasted in admin costs as it is, so part of cost will be balanced out right there.
Look at the life expectancies in other nations, look at their stress levels as compared to the U.S. A lot of stress in this country relates to the uncertainty and the greed of the current health care system. I’m a full time student right now and even being a healthy young adult I literally have a part-time job dealing with insurance companies and getting them to pay for things that should clearly be covered. The madness has to stop, we need change, and I don’t think interstate healthcare is going to bring about the changes we need.
If you work for a great company with a “platinum” healthcare plan then you are essentially living in a bubble sheileded from the sh– the rest of the country has to deal with. I understand why some people want change, if you’re lucky enough to have a great plan that’s awesome, and those plans should be there for those that have access. But it’s simply not fair for other hard working people who are not dirt poor or rich. Middle class healthcare in the country sucks compared to other developed nations.
January 10th, 2010 at 11:24 am
Emma, costs are high now because “young, fit, and healthy” do not buy insurance simply bacause it is too expensive. Buy increasing competition prices drop. When prices drop more of the “young, fit, and healthy” who previously did not pay for health insurance will. More “young, fit, and healthy” buying health insurance provides the insurance companies with a far larger base upon which to spread the “risk” associated costs. In other words, when an insurance company has a larger base of healthy members against which they can allay risk costs then they will be more likely to insure those patients they consider to be medium or high risk. It’s basic economics really which I’m assuming is not taught in biology classes. So long as an insurance provider from California choses to cover the mandated illnesses and conditions of New York they should be able to sell in New York. Competition reduces cost and improves quality, period the end. We’ve seen this in every industry that has been deregulated in the past 15 years.
January 22nd, 2010 at 2:46 pm
I’m fortunate to have good insurance,but I see people in my state(WV) that are forced to go to hospitals here,if they go out of the state,the cost is astronomical.I agree with the person above that stated that when one buys insurace across state lines there needs to be some protection for people with pre-existing conditions.There also needs to be choice in where a patient can go. To get quality care we’ve got 2 choices and that is limited,Charleston Area Med Center and WVU, all the rest are mediocre at best.I could already see the Govenor trying to consolidate all the healthcare in the state to be put under his school(WVU).He was trying to get his ducks in a row for Nancy and Harry’s healthcare plan
January 29th, 2010 at 8:23 pm
Aren’t insurance companies allowed to sell coverage across state lines now? Isn’t the Republican mantra just an effort to get congress to exempt insurance companies from state laws? Aren’t health insurance companies exempt from all anti-trust laws now? Educate me, someone.
February 7th, 2010 at 10:40 pm
Jerry Hawthorne Says:
October 17th, 2009 at 1:43 pm
Doctors waste enough time now fighting with the few insurance companies that are in their state. Add all the different regs. from many other out-of-state companies and the will have to hire more office staff to deal with them. And guess who will eventually pay for that?
—————–
I think that purchasing across state lines may beef up competition like the advocates of it says. However when you examine the average profit that insurance companies get from health insurance it only amounts to about 4-5% from personal research. So if we eliminated all the profits it could amount to about 4-5% in lower premiums.
I think Jerry’s tidbit is an EXCELLENT one. It estimated that Adminstrative costs amount to around 7% of health insurance. And mixing up the market with more and more paperwork may in fact back fire and cause adminstrative costs to skyrocket.
http://www.kaiseredu.org/topics_im.asp?imID=1&parentID=61&id=358
February 11th, 2010 at 2:39 am
Some very good points but as always, there must be peer-reviewed scientific studies to back up any statements.
March 4th, 2010 at 5:48 pm
Every law has a reason. Laws are passed in order to protect some” interest” and that “interest” is hardly ever what’s best for the people. Lately , I’ve been noticing comments from numerous investigative reporters saying ,”When things don’t make sense, follow the money”. I really don’t think Doctors would really care if they have to deal with insurances across state lines, especially if those insurances are in bordering States. I truly believe the main objection comes from Lawyers. Think about it. It is relatively easy for lawyers in State “A” to go after an insurance company from the same State “A”; but if the insurance company is from any other State, they would have to be licensed in that State or tie in with a law firm from that State and split the commision. A vast number of our elected politicians are Lawyers and are not to anxious to do anything to change the status quo. Just a thought.
March 11th, 2010 at 9:16 am
If the goal of purchasing insurance across state lines is to reduce the cost of health care, then why not end all regulation of health care. No licensing in the states or federal jurisdictions. Eliminate medical malpractice suits and you have a perfect world. I’l quit fixing lawnmowers and start doing orthopedic surgery.
Or is this issue one of replacing state laws regulating insurance with a federal beurocracy to do the same thing. If that is the case then why not one national police force. One big school district. One highway department. Interesting that the proponents espouse smaller federal government.
March 19th, 2010 at 1:44 am
I love all the presumptions about what unregulated companies would do for high risk candidates if they were flooded with healthy low-risk members. Let’s face it, they will do less, and it will be worse. What is their motivation to take on high risk patients? Answer -none – those people will be priced out of coverage. The insurance industry is all about low risk and high shareholder profits, it’s not about which company will feel the most charitable once they get rich. This isn’t about selling cars or cell phones, it’s about people’s lives, what this “deregulated across state lines” policy will do is turn healthcare into a hit-and-miss gamble on people’s lives. If there are proper regulations for all companies then that may stave off the run to the state with little or no regulation, so Federal regulation HAS to be a starting point.
Another poster mentioned that physicians ‘probably’ won’t care where your insurance is from – WRONG – they most certainly WILL care, I have insurance from what many consider one of the top insurers in the country and I’ve had 2 doctors already drop them due to failure to pay for tests, visits, and certain office procedures. Can you imagine the massive amount of office time this will incur, not to mention the constant back-and-forth with any one of 500 insurance companies with different policies and coverage plans? This will require Federal regulations to work efficiently, there is no doubt.
March 25th, 2010 at 6:50 am
Conservatives are always espousing the competitive cost benefits of allowing insurance companies to sell across state lines. I agree with Obama that it would likely lead to insurance companies “cherry picking” the healthiest customers as well as circumventing tough insurance regulations in highly regulated states in favor of selling their products “across state lines” from whatever loosely regulated state allows them to offer the least protections to consumer. HOWEVER, my real confusion over this entire idea is how insurance companies can offer their “product” in any state without having a program in place to manage reimbursement costs in each state.
I live in NYC and there are many insurance providers to choose from here. Nevertheless I have to check with each doctor to see whether they accept a particular provider’s insurance. No doctor is in every available insurance network and that’s when we’re talking about maybe a dozen to choose from. What would it mean for 1300 insurance companies from across the country to offer their “product”? Insurance companies make money by negotiating reimbursement rates to health providers that choose to join their plan (ie – are “in network”.)
I just don’t see 1300 insurers setting up networks in every state and I certainly don’t see doctors joining 1300 networks. So what happens when I buy an insurance policy from a health insurer in Wyoming. How does that insurer cover my expenses in New York. Are we talking about departing from the HMO / PPO co-pay model and returning to patients paying all expenses out of pocket and then submitting bills to the insurer for some percentage of reimbursement? If that’s the case, I don’t think it would make sense for most insurers and it certainly doesn’t seem like it would be cheaper or easier to manage for patients who would have to lay out huge sums of money for treatment and then pray for reimbursement (not to mention meeting deductibles and other requirements.)
Basically, I want to know on what basis insurance companies from outside of a state can compete with those insurance companies already well-established and well-entrenched within a state.
March 27th, 2010 at 11:10 pm
I am sorry, but I do not want anyone coming into to Pennsylvania to sell their insurance policies. From my understanding, our state has very tough laws that requires insurance companies to offer a “minimum” amount of services on their coverages. allyThis is a consumer protection that our legislators provide for our citizens. Hospitals and doctors should also be protected as well. They need to know that the services that are needed to treat their patients will be covered and payed for.
April 20th, 2010 at 6:41 pm
They idea that care would get worse if insusures were allowed across state lines is rediculous. Well maybe if it’s Medicare/Medicaid. Ezra Klein wrote that if this were to happen, it would create confusion about what is covered and what isn’t, and his plan is a gov’t option-which do what he warned people against. Gov’t itself doesn’t know what should/shouldn’t be covered. Look at the NHS in Britain. They may mean well, but they make terrible decisions based on cost containment. Some of you may think that the private insurers do the same, but if you made the deduction you’re missing one important point-insurers make a profit, allowing them to make more flexible financial decisions. Medicaid, Medicare, and any other gov’t option does not have that luxury.
September 25th, 2010 at 1:21 pm
The possibility that high-risk insurance disincentivizes price-cutting under competition is dubious. There will be a market for high-risk plans and cross-state competition will lower those prices, more than they were before Health Care was passed and certainly more than they are now. Competition naturally does this, all the time. The fact that this article finds this obvious for low-risk insurance but not for high-risk insurance is an arbitrary distinction.
This policy should not occur in a vacuum, however. High-risk insurance pools lower prices, especially if they’re given a broader base of clients. Cost-cutting provisions could free up plenty of government revenue for subsidies to lower high-risk and other insurance further. These include such provisions as fraud prevention, tort reform, and entitlement cutting.
January 19th, 2011 at 3:23 pm
Cross state line health insurance plan will authorize regulation of health care plans by a Federal bureaucracy. One of Obamacare provisions that is most offensive is control of health care by a Federal agency.
ERISA moved us dangerously close to this type of Federal intervention and interference.
Currently a health care plan in Texas is regulated by the Texas Department of Insurance.
In Texas if you have been rejected for a private personal health insurance you are qualified for participation in the Texas Health Insurance Pool.
Eligibility and exclusions are available at the Texas Health Pool website.
(http://www.txhealthpool.org/eligibil.html)
Rates are currently set at 200% of rates for private sector health insurance. Though there is a 6 month lookback for pre-existing conditions, participation in the plan is not denied. Following 12 months participation in the plan the pre-existing condition itself is covered.
The lookback does not apply if you had prior coverage for the preceding eighteen months with no gap of more than 63 days.
Additionally, the plan specifically covers certain catastrophic conditions.
Texans will not be benefited by participation in an inter-state compact or losing local control over our health care insurance.
January 21st, 2011 at 11:40 am
[...] and if you don’t mind finding out that your insurer doesn’t cover your illness”); Why Buying Health Insurance Across State Lines Minght Not be a Good Idea; Allowing health insurers to sell across state lines is a BAD idea on Democratic Underground [...]
January 22nd, 2011 at 8:09 pm
Buying across state lines is a bad idea and I’ll tell you why.
First, there is nothing stopping any insurance company from selling their product in every state in the union. Nothing.
Second. The insurance industry is the only industry besides baseball that has anti trust exemption. If you want insurance companies to compete, a good place to start might be not letting them collude – price fix.
The issue is all about state regulations and lowering insurance companies costs in order to increase profits.
Every state regulates the insurance industry in their state. If you can buy insurance from another state, what you are doing is side stepping your states regulations and consumer protections. What will then happen is that insurance companies will set up shop in the state with non existent regulations. You might pay less, but you will also get less. And again, since insurance companies can legally collude, their is no real competition.
January 26th, 2011 at 3:23 pm
Stopping federal government mandates and pumping money into the our federally subsidized system need to be limited or done with. The government prints money to pay for deficit spending and health care is huge for deficit spending. The more money pumped in the lower the value of the dollar, henceforth the more care costs. The fed are supposed to regulate interstate commerce not stop it per article 1,section 8 of the good old constitution. Let the states regulate it. Let the individual consumer decide whether or not he/she needs alcohol rehab therapy, acupunture or some other type of medical care. The costs of policies will go down since consumers are not mandated to buy a plan they do not need. Individuals can determine their own needs not a bureaucrat in DC. Also the people who cost the most are those sick which is generally the older people not the younger so they are the most expensive to pay for. If you are insured for all or most of your adult you should pay enough in to pay for coverage;if not a plan needs to be developed to meet that situation by governments. So I say stop the federal government over reaching power doing what they are not supposed to do in the health care industry. States cannot print money to meet their budgets like the Feds can. That right there will reduce costs dramatically do to reduce money supply, thereby also strengthening our dollar so we will have the best economy due to higher quality at a lower cost. So leave it to the states and not the socialists in DC.
February 6th, 2011 at 8:56 am
As an agent in a state where there is one carrier that owns 75%+ of the market, I’m open to more competition. I feel like it’s only a matter of time before they cut the agent out of the picture entirely.