Reforming Health Insurance: Competition Across State Lines


united states the commerce clause of the constitution (article 1, section 8, clause 3) was designed to prevent states from restricting trade and competition across their borders with protectionist legislation.[1] Over time, a unified national market has allowed, in most industries, American businesses to grow across the country, benefit from associated economies of scale, and through competition, pass those gains on to consumers. .

however, after the supreme court ruled in 1944 (united states v. southeastern insurance association) that the sherman antitrust law applied to insurance, the industry lobbied congress to reverse the ruling.[2] ] This led to the McCarran-Ferguson Act of 1945, which put states in charge of regulating insurance, including the exclusive power to license insurers to operate within their borders; the new law also protected state insurance regulations from taking precedence over federal regulations.

Reading: Why can’t health insurance across state lines

As the proportion of Americans with private health insurance increased from 23% in 1945 to 83% in 1975, the industry grew fragmented into 50 different states.[3] The inconvenience of this arrangement was, to some extent, checked by the Employee Retirement Income Security Act (ERISA) of 1974, which preempted state regulation of health care benefits for self-insured employer plans. [4] (A self-insured plan is one in which the employer pays for the benefits it offers out of its own funds, but generally contracts with an insurance company to administer the benefits.) Although this provision allows large employers to purchase health care services for their employees across the country, the millions of Americans who must obtain health insurance coverage from small group plans or individual policies remain excluded from the health plans of others. states.

The GOP platform of 2000 pledged to allow small businesses “to come together, across state lines, to purchase insurance through association health plans.”[5] in 2008, 2012, and 2016, this proposal was expanded to allow people to purchase health insurance across state lines.[6] and in 2018, the trump administration finalized a regulation to facilitate the formation of associative health plans for small businesses.[7]

the following year, u.s.a. the department of health and human services issued a formal request for information intended to make it easier for people to purchase insurance across state lines, but was unable to move forward with its implementation.[8] The result is that allowing people to buy health insurance from other states will likely require legal authorization and revisions to the McCarran-Ferguson Act.

disparities in premiums between states

premiums for equivalent aca plans in the individual market vary widely from state to state. Average premiums for benchmark silver plans in 2021 range from $307 per month in Minnesota to $791 in Wyoming (Figure 1). therefore, Americans may find themselves paying vastly different prices for a product that is standardized by federal law.

The variation in individual market premiums does not simply reflect differences in the underlying cost of providing health care; shows state-specific differences in health insurance markets. this is made clear by the fact that while premiums vary relatively little within states (even across considerable distances), substantial differences in premiums follow state boundaries (even between neighboring counties). for example, in all eastern oklahoma counties, benchmark premiums range from $500 to $699, while all counties across the border in western arkansas have premiums between $200 and $399 (figure 2 ).

Under ERISA, large employers typically manage the health benefits covered by their self-insured plans across state lines, which frees them from restrictive and potentially costly state regulations. Employer-sponsored health-insurance premiums are not just lower on average than those for equivalent individual market plans but vary much less between states (Figure 3).

state regulatory capture

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State governments often operate with limited administrative and technical resources and are highly vulnerable to pressure from interest groups. Medical providers (doctors and hospitals) are well represented in state capitols and frequently lobby legislatures to require insurers to pay for the services they provide, as a way to increase sales (and prices) of insurance. these services.

The typical state had less than one benefits mandate in 1970; for 2017, the average was 37. james bailey of temple university has estimated that each benefit mandate enacted by states tends to increase health insurance premiums by 0.4%-1.1% and that new mandates were responsible for 9%-23% of premium increases during 1996-2011. benefit mandates can add value to insurance coverage by preventing insurers from leaving gaps in coverage, deterring sicker people from enrolling.[9] Still, in a study from 1989-1994, Frank Sloan and Christopher Conover of Duke University estimated that 20% to 25% of Americans without health insurance were discouraged from purchasing coverage due to additional costs resulting from benefit mandates.[10]

Hospital and physician lobbyists have also pressured states to enact laws that increase their pricing power by making it more difficult for insurers to exclude them from covered provider networks. When HMOS began cutting hospital costs in the late 1990s, more than 1,000 bills were introduced in state legislatures. Most states have enacted laws requiring insurers to reimburse “any willing provider” for treatment in accordance with their standard payment arrangements. A study by Maxim Pinkovskiy of the Federal Reserve Bank of New York found that state anti-HMO laws increased revenues for medical providers, increased service usage, slowed the reduction in length of hospital stay, and caused the usa uu. spending on health care increased by 2% of gdp, accounting for much of the growth in health insurance costs in the early 2000s.[11]

The structure of insurance markets greatly influences the ability of providers to inflate and pass on costs. blue cross hospital insurance plans were initially established by the american hospital association (aha) in order to bolster hospital revenues, and aha in most states ensured favorable tax and regulatory policies to protect hospitals. competing hospitals.[12] By providing unlimited reimbursement to facilities based on the expenses they incurred, such insurance plans caused hospital costs to skyrocket.

If people were allowed to buy plans from other states, regulators in every state would be forced to put the interests of these people above those of insurers and the rest of the health care industry. a 2008 study by the department of health and human services estimated that lower premiums resulting from allowing people to purchase insurance across state lines could reduce the number of uninsured Americans by 12 million.[13]

rules here

ACA section 1333 allows states to pool their markets, allowing residents to purchase plans from other states. but CA also eliminated much of the variation in regulatory arrangements at the state level, by requiring all states to adopt many of the costlier benefit mandates and plan design features that previously existed at the state level.

In fact, much of the current variation in premiums between states is the result of new market distortions introduced by the state, rather than features that preceded it. in fact, the dispersion of premiums between states has increased considerably since it was implemented here in 2014 (figure 4).

The increase and variation in premiums in the individual market since it went into effect here is largely the result of the legislation’s “community rating” regulation, which requires insurers to cover all enrollees at broad demographic categories with the same premium, regardless of differences. on your medical risks. this regulation made the plans disproportionately attractive to those with the most serious health care needs, causing costs to skyrocket and premiums to rise until there were few healthier unsubsidized members left.[14]

This agreement created enormous uncertainty, as it required insurers to quote plans without knowing the likely costs of covering those who signed up. as a consequence, some insurers set premiums too low, incurring huge losses and driving competitors out of the market.[15] in 2018, 52% of Americans lived in counties that had a single insurer offering plans in the individual market.[16] Although competitors have since returned as the market has stabilized (only 10% of counties had a single insurer by 2021), it has so far done little to reduce premium disparities. Wyoming, which has the highest premiums in the country, had only one insurer in its individual market until 2021 and does not require regulatory approval of rate increases, leaving its insurer’s pricing power largely unfettered. .[17]

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nebraska, which has the second highest premiums in the country, also had only one insurer participating in the exchange here. raised premiums in the individual market to take advantage of an arrangement known as “silver loading.” [18] the silver load was a response to the absence of federal allocations for cost-sharing reduction subsidies, which expand the proportion of costs covered by silver plans from 70% to 73%, 87% or 94%, depending on annual income of the affiliates. states realized they could help insurers claim additional federal subsidies to make up the shortfall by allowing them to inflate benchmark plan premiums.[19] however, while the silver load has clearly artificially inflated silver plan premiums, it does not explain the amplified variation between states, as the variation in premiums for gold plans (which cover 80% of medical costs ) is just as large (figure 4).

In an attempt to lower premiums by increasing the proportion of enrollees who need little medical care, five states and the District of Columbia have reinstated the individual mandated penalty that Congress repealed in late 2018.[20] however, the mandate did little to compel people to sign up for reduced premiums at the federal level because the penalty was small relative to the often exorbitant cost of the premiums, and its reinstatement at the state level is unlikely to be more effective.[21] 15 states have established reinsurance programs that provide additional subsidies to plans that attract a disproportionate number of sicker enrollees and may be more successful in lowering premiums.[22] But the cost of such programs would skyrocket if out-of-state enrollees were allowed in.

the structure of the individual market regulated by aca, which relies on a delicately balanced risk pool, maintained by a combination of state-managed subsidies and regulatory cross-subsidies between plans, is likely to be incompatible with vigorous competition among the state. lines. therefore, such competition is likely to require the re-establishment of an insurance market in which plan prices can be commensurate with people’s medical risks.

This market already exists, albeit on a limited and restricted basis, with short term limited duration insurance (stldi). such plans are available in about half of the states, although the maximum length of enrollment allowed by state law varies (some states allow plans to guarantee renewal for up to three years, while others limit enrollment to three months). [2. 3] stldi plans can offer significantly lower premiums and better benefits to people who enroll before they get sick, and seek to attract enrollees by providing access to large national networks of medical providers. ACA plans, by contrast, generally cover only the minimum number of local providers required by state law.[24] Allowing people to buy stldi plans from other states would make insurance coverage more affordable while also making it easier for national medical provider networks to develop competition.

Congress should protect consumers by setting national standards for stldi plans. These standards should require insurers to renew coverage indefinitely, regardless of medical conditions people may develop, and prevent states from forcing people to cancel coverage they purchased in other states.

fundamental transformation

Competition between states is necessary for any fundamental transformation in American health care. While the old model, which provided services through local hospitals, made sense 80 years ago, the increasing specialization of the medical profession and the capital intensity of surgical procedures make it increasingly inappropriate. Not all counties can support state-of-the-art neurosurgery, and some states may not. large academic medical centers and specialized facilities generally provide better quality clinical outcomes than smaller hospitals, where staff may be poorly equipped and inexperienced in treating complex cases.[25]

Because hospital care involves high fixed costs, economies of scale are substantial. In 2017, the cost of a knee replacement in the US. uu. averaged $30,000, while heart bypass surgery was $78,000, but prices vary greatly among facilities.[26] at such levels, disparities in price and quality between facilities dwarf the cost and inconvenience associated with traveling to more efficient providers. Limiting people to state insurance locks them into inefficient and often monopolistic provider markets that are often dominated by single medical systems, subjecting them to inflated pricing power and ever-increasing costs of care.

State fragmentation of insurance markets also undermines the portability of health insurance coverage between jobs. The inability to carry stldi coverage across state lines prevents people from renewing plans. While some states prohibit the purchase of stldi coverage altogether, moving to even the most pro-stldi state would force people to purchase coverage again. this would expose them to the risk of coverage denials and rate increases due to pre-existing conditions. A strong and competitive private insurance market therefore requires underwriting and interstate portability to go hand in hand. for insurance to be compatible with interstate competition, insurers must be allowed to price in proportion to an individual’s risks, and individuals must be allowed to maintain insurance renewal guarantees as they move from one country to another. state to another.


see final notes in pdf

about the author

christopher pope is a senior fellow at the manhattan institute. Previously, he was director of policy research at West Health, a nonprofit medical research organization; healthcare policy companion in the usa uu. house committee on energy and commerce; and research director of the american enterprise institute. Pope’s research focuses on health care payment policy and recently published reports on hospital market regulation, entitlement design, and insurance market reform. His work has appeared, among others, in the Wall Street Journal, Health Affairs, US News and World Report, and Politico.

the pope has a in government and economics from the London School of Economics and an M.A. and doctorate in political science from washington university in st. louis.

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