Some dream of payers without borders, but obstacles remain

The interstate health insurance sales sought by the Trump administration could change how primary care physicians are reimbursed and how they deal with private payers, but there are significant challenges to it ever becoming law.

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Interstate sales could mean independent physicians and healthcare provider networks would have more choices about which private payers they contract with, but they also could find themselves dealing with out-of-state regulators.  

During last year’s campaign and since taking office, President Donald Trump has pushed for interstate insurance sales, calling it an essential part of repealing and replacing the Affordable Care Act (ACA), and promising it would lead to more affordable insurance.

At first glance, it seems logical that one large, nationwide market would be more efficient than 51 smaller ones (Washington D.C. is its own.) Competition would drive down prices and people would have a better chance of finding  plans specific to their needs. 

By having to comply only with regulations in the state where it is headquartered, insurers would have lower administrative costs and, presumably, could pass the savings on to consumers.

However, five states already allow out-of-state health insurers to sell coverage within their borders, but no insurance providers have done so. And that highlights a fundamental problem with the policy-it’s far more popular with politicians than it is with the healthcare and insurance industries. 

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“It doesn’t matter what the federal government does [about deregulation]. It just doesn’t make business sense,” says Joseph Antos, Ph.D., MA, a health policy expert at the conservative think tank American Enterprise Institute (AEI), and former assistant director for health and human resources at the Congressional Budget Office.

Federal exemption and state control

Insurance regulation has been a state responsibility for more than 70 years.

In 1945, the McCarran-Ferguson Act exempted insurance companies from parts of federal antitrust law and made individual states the primary regulators of insurance. It was done to allow insurers to share information so they could better project future losses and set prices accordingly.

The effect is that insurance companies must register in each state in which they do business, and any products they sell in that state are regulated by that state’s insurance department.

Individual states set their own insurance requirements to which companies must adhere. Though companies like Aetna and Anthem operate in multiple states, their offerings in each state must follow the rules of those jurisdictions. In other words, they can’t sell an Iowa-regulated policy in
Illinois.

Critics of the antitrust exemption say it has produced highly concentrated health insurance markets in the states, many of which are dominated by one or two large carriers.

In addition, they say, states have done a poor job of policing the industry and protecting consumers from abuses, such as reduced coverage and price fixing. Finally, they like to point out that Major League Baseball is the only other industry that enjoys such an extraordinary antitrust exemption.

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The exemption frustrates many politicians, mostly Republicans, who want it repealed. 

However, repeated attempts to do so have gone nowhere, primarily due to opposition from the health insurance lobby. In March, the U.S. House of Representatives overwhelmingly passed a bill repealing the antitrust exemption, but similar measures have died previously in the Senate. Ending the exemption was not part of the healthcare reform bills passed by the House and Senate earlier this year.

Only a minority of Americans would potentially be affected by the ability to buy health insurance across state lines. Employees of most large companies are covered by self-funded health insurance that are regulated not by states but by the U.S. Department of Labor. 

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Also, federally authorized health savings accounts and high-deductible health plans are exempt from most state regulation. So the impact would be felt primarily by people who buy individual policies and those who get coverage through employers too small to have self-funded plans.    

That amounts to about 20 million people, estimates the Center on Health Insurance Reforms at Georgetown University’s Health Policy Institute, though people regularly move in and out of the group, depending on their employment, age and healthcare needs. 

The effects of deregulation

While proponents of allowing interstate sales say it would result in greater choice, better coverage and lower costs, opponents say it is impractical at best and harmful at worst.      

State regulation resulted in a patchwork quilt of requirements as to what benefits insurers must offer. Generally, states in the Northeast and the West Coast have mandated the broadest coverage while those in the South and Mountain West have required less. However, the ACA requirement that health insurance plans cover 10 “essential health benefits” greatly narrowed the coverage gap among states. If the ACA is repealed in favor of something that returns more power to the states, those divisions could widen again.    

And, according to critics, if the McCarran-Ferguson exemption is repealed, insurers would rush to establish operations in states with the fewest coverage mandates and regulations, similar to the way companies incorporate in business-friendly Delaware and credit card companies set up shop in South Dakota, which does not have a law that regulates interest rates. Insurers then could sell those policies in all states in which they operate, free of any control from those states.

Under this scenario younger, healthier people could buy less expensive out-of-state policies offering minimal coverage, leaving older, sicker customers to buy in-state policies, driving up premiums and making the market less attractive for insurers. Critics say this would result in a “death spiral” of rising premiums and restrictive coverage for those who need more healthcare services.

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“Across state lines [sales] is just another way of [proponents] saying, ‘we want deregulation.’ If you don’t want maternity care, you don’t have to have it. If you don’t want cancer care, you don’t have to have it.’ This really destroys the concept of insurance,” says Trish Riley, executive director of the National Academy for State Health Policy (NASHP), a nonpartisan and nonprofit group of state health policymakers.

That’s disputed by AEI’s Antos, who argues that if the young and healthy did not rush to get health insurance under the ACA’s individual coverage mandate, even under the threat of penalty, they are unlikely to pursue out-of-state insurance.

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Business barriers

Ideology aside, the proposal doesn’t reflect business realities, critics say. For example, the most-cited reason why out-of-state insurers have not entered the markets in the five states that allow it is because it doesn’t make good business sense.

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It would be extremely difficult and expensive for an insurer to build a provider network in another state. “When you create a health plan, it’s always a very local market. It’s not like creating a sneaker and then selling it everywhere,” says Kristine Grow, senior vice president, communications, for America’s Health Insurance Plans (AHIP), the lobbying group for commercial insurers.

An out-of-state insurer trying to set up a network would not have the market share to negotiate favorable terms, she says, which would result in higher costs and premiums. And plans with limited provider networks would not be attractive to consumers.      

Interstate insurance policies also would be hampered by the geographical disparities in healthcare costs. While such disparities certainly exist to a degree within states, they are even more pronounced on a national scale.

The National Association of Insurance Commissioners opposes interstate sales, according to its website, claiming it would reduce options available to consumers and make it harder for sick individuals to find affordable coverage. 

Together, those make the proposal unfeasible, regardless of the motivations behind it, critics say. “It doesn’t reflect the way insurance policies are built, marketed and sold,” says Sabrina Corlette, JD, a professor at Georgetown University’s Center on Health Insurance Reforms. 

The effect on physicians

Discussion of the potential impact on physicians has been largely absent during the debate on interstate insurance.

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Presumably, introducing new insurers into a state could offer a greater choice of payers with whom doctors could contract, but critics say physicians could be left with less protection than they have now.
 

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Out-of-state plans could omit the prompt payment requirements some states have, says NASHP’s Riley. And doctors who want to appeal a payment might have to do so in a different state. “You’d have no recourse, except to go to (that state) and they would tell you they don’t have a prompt payment clause,” she says.

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If the critics are correct, physicians also could see more patients with narrower coverage and higher premiums and copays, all of which might affect their ability to seek and pay for healthcare.        

In June, the American Medical Association reiterated its support for interstate insurance sales, as long as patient and physician protections consistent with and enforceable by the state where the patient lives apply. 

These include such provisions as prompt payment laws, safeguards against health plan insolvency and fair market practices, such as appeal rights. The American College of Physicians opposes the policy if it allows insurers to circumvent state regulations.  

Will it ever be repealed?

If the McCarran-Ferguson Act is ever to be repealed, now would seem to be the time. The GOP controls the presidency and both houses of Congress and party leaders have pledged to end the exemption. But that’s a long way from actual repeal.  

“You just don’t see it on the agenda,” says Georgetown’s Corlette. “From both ends of the political spectrum, you see people saying this is kind of a dumb idea.”

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One of the policy’s most vocal champions has stopped lobbying for it, at least temporarily. The American Legislative Exchange Council (ALEC), a nonprofit organization of conservative state legislators and private sector representatives, first called for interstate health insurance sales in 2011, but  dropped the idea from its policy agenda earlier this year.

“We have not abandoned it at all,” says Mia Heck, director of ALEC’s Health and Human Services Task Force. “We just need to take a closer look at it in light of what’s happening with healthcare.”

She says she expects it to be revisited in the third part of Trump’s announced three-part healthcare plan, after repealing and replacing the ACA and deregulating healthcare.

However, the AEI’s Antos says he doesn’t expect the antitrust exemption to be repealed.

Of course, given the lack of action in the five states that currently allow interstate sales, there is also the chance that the exemption could be repealed and nothing changes because insurers don’t act on it.