When proposing alternatives to the Affordable Care Act, many individuals tout the interstate sale of health insurance policies as a method to bring health insurance premiums down.
Recently Georgia's Governor Nathan Deal signed just such a bill into law. Supporters contend the bill would lower insurance costs by introducing more competition. Opponents say it paves the way for watered-down policies that don’t require coverage for crucial procedures that Georgia policies mandate.
Are the myths below, truly myths regarding the purchase of insurance across state lines? In researching that question I found a pretty reputable source that addressed this issue, the National Association of Insurance Commissioners (NAIC). Now, obviously the Georgia Insurance commissioner belongs and participates in NAIC meetings, but let's look at what the NAIC has to say on four specific points it calls myths, followed by their perception of the isurance reality. I'll add my own analysis after each point.
According to the NAIC the first myth is that allowing individuals to purchase insurance a cross state lines will give them access to coverage at lower premiums.
REALITY: Interstate sales will start a race to the bottom by allowing companies to choose their regulator.
Insurance Guide Analysis: Insurers will seek out the state with the most lenient insurance regulations and allow them the opportunity to select the healthiest risk. This will allow those consumers in the best health to access affordable health insurance while leaving less healthy patients with steep premiums. The health insurance marketplace is already precarious enough without adding a competition to outcheap a rival. Competition should be about quality customer service and benefits, not with regulations that create incentives for the reverse.
Mandated benefits are the reason insurance is more expensive in some states than others, and interstate sales would lower premiums by allowing people to forgo benefits they don’t want.
REALITY: Mandated benefits add, according to the NAIC, about 5% to the cost of a policy.
Insurance Guide Analysis: Interstate sales would allow some insurers to use the insurance laws in some states to cherry-pick the best customers by avoiding consumer protections that require them to cover individuals with preexisting conditions and limit their ability to charge higher prices for older, sicker customers. Some states of course have strict rules that could be circumvented easily through interstate commerce. That would be a surprise to many employers and insureds who have become accustomed to quality insurance benefits and eligibility rules.
Interstate sales will simply provide people with more options. People who don't want interstate policies can keep the coverage they currently have.
REALITY: Interstate sales would actually reduce the options available to consumers.
Insurance Guide Analysis:Out-of-state insurers would be able to lure healthy enrollees away from existing insurance because of lower premiums. Those groups would then become progressively sicker and more expensive until they ultimately fail. Insurers that currently comply with state consumer protections and the employers who purchase coverage from them would be forced by out-of-state competitors to evade them as well. The result would be that insurance policies would cover less and less, as insurers try to design polices that discourage the sickest customers from applying.
Policies sold across state lines would be governed “cooperatively” by the states with no loss of consumer protection.
REALITY: Allowing insurance to be sold across state lines would eliminate the ability of insurance regulators to assist consumers.
Insurance Guide Analysis: We have tate-based regulatory oversight for a reason, what power would insurace regulators have if the system were fundamantally altered this way. Our industry has the quality it does in large part due to the insurance regulations and tradition of compliance our industry sees as essential.
It has been my experience based on 15 years in the industry that the vast majority of insurance agents and insurance company staff, see and embrace the value of quality consumer protections that insurance regulations, mandates, rating rules, and marketing guidelines provide. Eroding those regulations state-by-state would imperil our industry much like it did to Wall Street recently.