During his recent address to Congress, President Trump earned a standing ovation for once again declaring that, in place of Obamacare, Americans should have “the freedom to purchase health insurance across state lines.”
Here’s the dirty little secret: Obamacare already gives Americans this freedom.
Dirtier still: When Republicans propose “across state lines” legislation, they’re really talking about reducing states’ sovereignty to make their own regulatory decisions. So much for states’ rights.
Filthiest yet: The best-case scenario for Trump’s proposal would be that nothing happens; worst case, lots of people lose access to health care.
Despite the flip sloganeering, this is complicated stuff. (Nobody knew health care could be so complicated, amirite?) So first, here’s some background on how the system works today.
Since 1945, the federal government has delegated the regulation of individual health-insurance plans to the states. That means states have historically decided what benefits insurers must cover (diabetes screening, in vitro fertilization, acupuncture, etc.); how much insurers can adjust premiums based on age, gender, past illness, occupation and other characteristics; and lots of other kinds of regulations, such as how plans can be marketed.
Then the Affordable Care Act came along.
Among many other provisions, Obamacare raised the floor for what services insurers had to cover, though states can still require benefits above the federal minimum. For example, the ACA says plans must fully pay for certain types of preventive care that not all states required previously.
The law also placed restrictions on how much insurers can adjust premiums based on age and other characteristics (though again, states can limit this further) in the individual and small group markets. For example, the law says insurers can’t charge you more just because you once had cancer or because you’re female, both practices that almost all states used to allow.
And, apparently unbeknownst to Trump and other Republicans, Obamacare also encouraged the sale of insurance across state lines.
The law set up a framework to help states develop “health-care choice compacts” with one another to allow plans to be sold across borders, conditional on mutually agreed-upon rules. Several states have started the process of creating such compacts. But to date, none has materialized.
Why is . . . complicated.
Lots of state regulators don’t want to give up turf, according to Georgetown University Health Policy Institute professor Sabrina Corlette. (There’s that state sovereignty thing again.) Plus, insurance companies haven’t exactly been clamoring for the right to sell across state lines.
The barriers to selling plans in a new state turn out to be less about regulatory red tape and more about the colossal costs associated with setting up networks and negotiating rates with new doctors and hospitals.
Again, that’s how things work now. What, then, are Republicans proposing?
When Republicans talk about allowing health insurance to be sold across state lines, this is shorthand for a bigger suite of deregulatory proposals. What they’re usually referring to is (A) lowering or eliminating the federal minimum standards for all states, and (B) allowing insurers from one state to sell a product that undermines another’s laws.
In other words, they want to allow a company in, say, lower-regulation Alabama to be able to sell insurance in higher-regulation Massachusetts, without having to follow Massachusetts’s laws about pricing or coverage.
At first blush this idea sounds like it has merit. It might give consumers more options — assuming insurers decide it’s worth going through that expensive process of setting up networks in new states.
But let’s game out what happens.
Just as credit card companies tend to domicile in South Dakota, and many other companies wanting to minimize their tax liabilities incorporate in Delaware, every health insurer would have an incentive to park in the state with the least restrictive regulations.
They could then cherry-pick the youngest, healthiest patients in the higher-regulation states who don’t expect to consume much health care, according to Urban Institute senior fellow Linda Blumberg. That would leave behind older, less-healthy people in those relatively higher-regulation states, driving up average costs and making premiums less affordable.
In time, those sicker, older consumers would be forced to either drop their insurance altogether (causing costs for remaining patients to rise even further) or buy less-generous out-of-state coverage themselves. Any struggling insurers left in those high-regulation states would also pressure regulators to loosen coverage requirements to push prices down.
In other words, a race to the bottom. People either lose their coverage because they can no longer afford it, or they end up buying plans that don’t cover much of anything.
It’s hard to see the upside, which is why even conservative and free-market-oriented health experts have decided this unkillable “across state lines” proposal is junk. It sure sounds nice to those who don’t know much about health-care policy. Just ask our president.
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