Wednesday, May 16, 2012

Interstate Purchase of Health Insurance? No Magic Bullet

Many conservatives promote the idea of interstate purchase of health insurance as a solution to the health-insurance crisis. What exactly does this mean?

In fact, health insurers "sell across state lines" already. Generally speaking, large insurers either have separate subsidiaries in different states (e.g. WellPoint) or write policies from a balance sheet in the state in which they are domiciled (e.g CIGNA).

But interstate purchase as described by conservative activists is somewhat different. In a podcast produced by the Heartland Institute, I explain why it is an impractical solution.

Listen to it here.


FTimmins said...

John, you make good points regarding the ineffectiveness of the Georgia law. I certainly agree that this is not THE answer to healthcare reform.

At the same time, as someone involved in the healthcare financing business for 40 years, I can tell you that the notion of allowing carriers to do business in all states without compliance with the mandates from each state is certainly part of the solution.

I say that with the belief that any government dictates (mandates) be they federal, state or local regarding the types of benefits that must be offered is counterproductive to effective healthcare reform, and are breeding grounds for corruption and crony capitalism.

This type of legislation is not going to useful if it is done on a state to state basis. It is too "hit and miss" and therefore not surprising that the Georgia law had failed to created a lot of enthusiasm.

You are right that costs vary from state to state for many reasons other than the mandates. That is why the reform must be initiated comprehensively at the federal level.

Mike Feehan said...

Just listened to the podcast - agree individual-owned policies are key consumer change. I also like the concept of specialty insurers for individuals with chronic conditions (reminds me of predictions back in the 80’s that DRG’s would lead to emergence of specialty hospitals.)

As much as I agree with your thinking, I still believe “cross-state” buying of insurance is an idea whose time has come.

Yes, the much larger, underlying problem is the cost of medical care; yes, the idea of cross-state purchase of insurance does nothing about this underlying cost; and yes, provider reimbursements that an insurer has negotiated in one state wouldn’t apply in another state.

However, it’s also true that current law distorts the insurance markets. States can set their own, independent benefit mandates and states can prohibiting their citizens from buying policies that have fewer mandates and are therefore less expensive; that is, they are prohibited from buying “across state lines.” As a result, some people are obliged to pay more than they need to pay for the insurance they want.

The federal government recently argued before the Supreme Court that insurance is interstate business governed by the Commerce Clause. In fact the Supreme Court reached this very same position in the 1940’s. Why then can the states continue to prohibit their residents from purchasing an insurance policy that has been approved for issue in another state? State prohibitions clearly interfere with the interstate business of insurance. Isn’t it time to modify or repeal McCarran-Ferguson?

You and I can buy thousands of products - even fertilizer – from vendors in states where we don’t live. Why not insurance?

Clearly, it would be far simpler if the states allowed individuals a few simple choices: for example, a policy with all its mandates, or with none. Yeah, that’s gonna happen.

Just to be clear, I don't envision this would reduce the cost of medical care by a nickel. But it could, I think, reduce the cost of insurance for many people - and that's why it's worth thinking about.

John R. Graham said...

Thanks for your comments. My opinion - not legal, but economic - is that health insurance is not interstate commerce and the Supreme Court's decision in U.S. vs. South-Eastern Underwriters' Assocation was wrong.

Health insurance is not "commerce." It is a contract to pay. Physicians and hosptials are largely not engaged in interstate commerce because once a person shows up in your office or hospital they are in your state. Telemedicine is a different issue.

Medical devices and drugs are interstate commerce, obviously.

But insurance is a contract to pay, not commerce as such.

State mandates have not interfered with CIGNA's or AETNA's or WellPoint's or UnitedHealth Group's ability to offer individual and small-group policies in different states.

As always, I go back to my original example: The pages of federal law governing life insurance or auto insurance amount to zero, and there is no barrier to auto insurers offering policies in every state, although automobiles themselves are clearly interstate commerce.