Selling Health Insurance Across State Lines

(A version of this Health Alert was published by The Hill.)

Here we go again: Republican politicians are rolling out an easily digested sound bite: Allowing health insurers to sell coverage across state lines would solve the problem of high premiums. In the current presidential race, Donald Trump, Sen. Marco Rubio (R-Fla.), Sen. Ted Cruz (R-Texas), Sen. Rand Paul (R-Ky.), Rick Santorum, Gov. Bobby Jindal (R-La.), and the recently departed Gov. Scott Walker (R-Wis.) all proposed it. It has been a feature of Congressional Republican proposals since at least 2010.

The only problem is that such a reform has no effect. Back in 2010, Georgia sacrificed its sovereignty to regulate health insurance, but premiums didn’t change. The reason is that if a health plan wants to offer coverage in a state, it already can easily do so. Health insurers enter and exit markets all the time. Aetna and Cigna are domiciled in Connecticut, but that does not prevent them from offering plans in other states. Insurance commissioners do not discriminate between in-state and out-of-state insurers when they issue insurance licenses.

Advocates of “selling health insurance across state lines” will insist that I am missing the point. Absent Obamacare, states had dramatically different health insurance mandates. As a result, New Yorkers paid more for insurance than did Utahans. Therefore, the argument goes, if Congress passed a law allowing New Yorkers to buy policies licensed in Utah, they could buy less expensive coverage. Well, maybe they could, if they wanted to fly to Salt Lake City every time they wanted to see a doctor or needed an operation. By far the largest determinant of insurance premiums isn’t mandates, it’s the provider network tied to a health plan.

Whether or not Congress has the authority to pre-empt states’ powers to regulate insurance within their borders is a question I will leave for constitutional scholars to debate. Whatever the answer, it does not change the fact that “selling health insurance across state lines” is a red herring. To illustrate, consider auto insurance. If you move from one state to another, you call your insurer, tell the customer service rep your new ZIP code, and that is that. You may get a small adjustment in your premium, but it will be no big deal. And yet, there was no Act of Congress that mandated selling auto insurance across state lines. Auto insurance is regulated entirely by states.

States have managed to harmonize their laws such that they can handle residents moving in and out of state with the same auto insurance. Indeed, states even launched an interstate compact in 2006 to further harmonize their insurance laws.

The main difference between auto insurance and health insurance is that individuals own auto insurance, but employers own health insurance. Obviously, states would not attract residents if they impeded a national market for auto insurance. Similarly, if we owned our own health insurance, states would quickly harmonize their laws to facilitate a national market.

Which brings us to a legitimate recommendation for Congress: Stop the tax code’s discrimination against individually owned health insurance.

Unfortunately, most GOP healthcare proposals would continue this injustice. And injustice it is. The bias in the tax code forces us to get the health benefits that our employers choose, rather than letting us use our own pre-tax dollars to buy individual, portable, guaranteed renewable, health policies of our own choosing.

Making the tax code more equitable is not an easy lift. Any politician who advocates this reform  — as Senator McCain (R-Ariz.) did in his 2008 presidential campaign — jumps into a buzz saw wielded by powerful special interests such as the U.S. Chamber of Commerce, the ERISA Industry Committee, and America’s Health Insurance Plans. Consequently, the Republican politicians retreat by repeating the meaningless “selling insurance across state lines” mantra.

Until they embrace the principle that every American should be free to choose his own health plan, and not have to rely on one chosen by his employer, the Republicans will continue to stumble on the path of real health reform.