By Margot Sanger-Katz
At the Fox News Republican debate, Donald Trump offered a way to lower health care costs: allow insurers to sell their policies across state lines.
“What I’d like to see is a private system without the artificial lines around every state,” he said. “I have a big company with thousands and thousands of employees. And if I’m negotiating in New York or in New Jersey or in California, I have like one bidder. Nobody can bid.” Erasing those lines, he said, would result in “great plans.”
The idea of developing a more national market for health insurance has become a major part of Republican health reform orthodoxy. A bill to allow interstate insurance sales was introduced in Congress in 2005, and, since then, it has been a part of the platform of every Republican presidential nominee. This time around, Mr. Trump is not alone in his view: Scott Walker, Marco Rubio, Ted Cruz, Rand Paul, Rick Santorum and Bobby Jindal have all endorsed it. Aside from repealing Obamacare, allowing insurers to sell their products across state lines appears to be the most popular health reform idea among the G.O.P. candidates.
It’s such a perennial suggestion that when I called Len Nichols, a health policy professor at George Mason University and the author of a 2009 paper on the subject, to discuss the idea, he asked: “Are you kidding me? We’ve been through this about 30 decades ago.”
The idea is that by eliminating the red tape associated with state insurance regulation, insurers will be able to offer national plans with lower administrative costs. That would expand consumers’ choices and reduce the price of insurance. The proposals also all assume that, in place of expensive regulations in some states, insurers would have the option of choosing to base their companies in a state with fewer rules. In some versions of the plan, they would have to comply only with basic federal requirements that would apply everywhere.
“You would have a lot more people coming into the market,” said Brittany La Couture, a health policy counsel at the conservative American Action Forum, who has written about the idea in a largely positive light. A national market would “give people options, help them choose the best plan for them,” she said.
Both critics and enthusiasts of the idea agree that this could be true. Some states require much more of insurers than others, and following the many and varied state rules may indeed drive up the cost of insurance in some markets. Customers in a state that requires insurance to pay for chiropractic care or infertility treatments, for example, might prefer to buy a cheaper policy in a state that doesn’t require such benefits.
The trouble with the idea is that varying or numerous state regulations aren’t the main reason insurance markets tend to be uncompetitive. Selling insurance in a new region or state takes more than just getting a license and including all the locally required benefits. It also involves setting up favorable contracts with doctors and hospitals so that your customers will be able to access health care. Establishing those networks of health care providers can be hard for new market entrants.“The barriers to entry are not truly regulatory, they are financial and they are network,” said Sabrina Corlette, the director of the Georgetown University Health Policy Institute.
In 2012, Ms. Corlette and co-authors completed a study of a number of states that passed laws to allow out-of-state insurance sales. Not a single out-of-state insurer had taken them up on the offer. As Ms. Corlette’s paper highlighted, there’s no federal impediment to across-state-lines arrangements. The main difficulty is that most states want to regulate local products themselves. The Affordable Care Act actually has a few provisions to encourage more regional and national sales of insurance, but they have not proved popular.
When it comes to the Republican national across-state-lines plans, insurers have also been muted in their enthusiasm. Neither America’s Health Insurance Plans, the lobbying group for most private insurers, nor the Blue Cross Blue Shield Association has endorsed such a plan when it has come before Congress.
There’s a part of the health insurance market where regulations are largely identical around the country: the one for private Medicare Advantage plans. If uniform rules, alone, were enough to ensure a broad array of competitors, you might expect to see many insurers participating. But that does not seem to be the case.
My colleague Reed Abelson reported last week on the competitiveness of the Medicare Advantage market. A recent report found that, in 97 percent of counties, the market for Medicare Advantage plans was “highly concentrated,” meaning seniors had very limited choices.
Beyond regulations and doctors, the demographics of different states help explain why insurance is cheaper in some places than others. Insurance tends to be less expensive in states like Utah and Colorado, where more people are young and healthy. If customers in New York wanted to start buying Utah plans, they might face two surprises: fewer local doctors and higher costs related to the health of the local population.
“I’ve tried for 10 years to explain this to Republicans; it is a big problem,” said Merrill Matthews, a resident scholar at the Institute for Policy Innovation, a Dallas think tank that focuses on free-market solutions to policy problems. “Just because a good affordable policy is available in another state doesn’t mean that I would be able to get the network of physicians and the good prices that are available in that other state.”
For that reason, even enthusiasts for interstate insurance sales were quick to tell me that the plan is “not a panacea” or “not a silver bullet.” Both phrases came up repeatedly.
Critics of the across-state-lines plan worry about negative consequences of letting insurers shop for the state regulator of their choice. Just as many corporations tend to incorporate in Delaware, or credit card companies tend to have headquarters in South Dakota, insurers may end up congregating in whatever state offers the most lenient regulations. That could mean that customers who get sick could be harmed because there are few comprehensive policies available, or because consumer protections are weak when things go wrong.
Right now, the Affordable Care Act sets up some minimum standards for insurance plans sold everywhere, but since the Republican proposals include repealing the law, those limitations would presumably disappear.
There’s one other problem with Mr. Trump’s statement: The across-state-lines issue affects only individuals and small businesses, and rarely matters for large companies like his Trump Organization. His campaign wouldn’t confirm the company’s insurance arrangement, but nearly every large American company is what’s called self-insured. That means it is not subject to state insurance regulation.
Truly national health insurance companies are still rare, in part because building a national provider network is so difficult. The limited choices Mr. Trump faced were most likely those of the national market and not the result of varying state regulation.