Do health insurers even want to sell across state lines?

October 3, 2012

Allowing insurance sales across state lines comes up perennially as a way to drive down the cost of health care.

Conservatives argue that allowing a plan from a state with relatively few benefit mandates - say, Wyoming - to sell its package in a mandate-heavy state (like New York) would give consumers access to options that are more affordable than what they get now. 


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Liberals tend to argue this is a bad idea, contending that it would create a "race to the bottom," where insurers compete to offer the skimpiest benefit packages. 

A new paper from Georgetown University researchers suggests a third possible outcome: Absolutely nothing at all will happen. They looked at the three states - Maine, Georgia and Wyoming - that have passed laws allowing insurers from other states to participate in their markets. All have done so within the past two years. 

So far, none of the three have seen out-of-state carriers come into their market or express interest in doing so. It seems to have nothing to do with state benefit mandates, and everything to do with the big challenge of setting up a network of providers that new subscribers could see.

"The number one barrier is really building that provider network that's attractive enough to get patients to sign up," said lead study author Sabrina Corlette. "To do that, you have to offer providers attractive reimbursement rates, which makes it difficult to get them in network."

Corlette and her colleagues talked to insurers and regulators in all three states. And they heard this barrier come up again and again: Entering a new state is really difficult, whether there are benefit mandates or not. "We kept hearing about the cost of building a provider network that's strong enough to market," she said.

It becomes, she said, a bit of a "chicken and egg" problem: Insurance companies have to show consumers they have a network. But to build that network, you want to guarantee your providers a decent volume of patients." Here's how one insurance executive, from a Massachusetts plan that could potentially sell in Maine, put it (it's worth noting that Maine's law, while in effect, does not allow out of state insurers into their market until 2014):

A regional insurer, based in Massachusetts, reported that the company is “always looking at expansion opportunities” in New England, but is not considering Maine because of difficulties in establishing a provider network in the state, which was referred to as a “very challenging environment.” According to the insurer, the main challenge is that “the delivery system is locked up and [we] can’t make a deal [on provider reimbursement].” 

It's unclear whether this is an issue specific to these states - or a more widespread challenge for expanding regional insurance sales. All three states tend to have relatively rural populations, which could make setting up a provider network especially vexing. Avik Roy has previously argued that this could be a short-term issue, that providers need more time to actually set up these networks. 

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Brad Plumer · October 3, 2012