Policy Analysis | April 2017

Cross-State Health Insurance Policies

Roger Moore

The idea of selling health insurance “across state lines” has gained traction over the past several years and, per its proponents, has the potential to lower the costs of private health insurance for consumers. Those in support of cross-state sales assert they can lead to the proliferation of national and/or regional markets for insurance policies, thereby creating additional competition to drive costs down and offer more alternatives for consumers. Proponents contend cross-state policies, if applied correctly, allow health insurers to bypass burdensome state regulations and expensive benefit mandates that drive costs up and provide little meaningful value for many consumers, particularly younger and healthier people. 

It is not widely known that states have the authority to sanction sales across their borders and define the conditions under which such sales can be made. According to the Commonwealth Fund, six states have enacted policies allowing out-of-state health insurance plans in their markets: Georgia, Kentucky, Maine, Rhode Island, Washington, and Wyoming. However, not one out-of-state health insurer has offered policies in a new market that allows cross-state sales. Experts and officials in the insurance industry attribute this to the fact that establishing local provider networks, a necessity for all health insurers, is an extremely difficult and timely undertaking, particularly for an entity based in another state, as it involves negotiating contracts with local doctors and hospitals so that customers can be covered in their respective areas. In fact, setting up a local provider network reportedly is the biggest barrier for insurance companies that may be interested in selling their policies in another state, more so than restrictive regulatory environments or costly benefit mandates.

There are options available to overcome these obstacles though, to date, none have been successfully applied. A block of states could pass legislation and open their markets to each other simultaneously, thereby spurring investment that can provide the foundation for a sustainable cross-state market. Additionally, a group of states could enter an interstate compact under which each state abides by a specified set of regulations. This is complicated, however, because many states and their insurance authorities may be unwilling to relinquish their regulatory autonomy, which would be required to enter such a collective compact. There also would be questions related to how an interstate compact would be crafted, as it would require input from multiple states and nuanced negotiations to ensure all involved parties are satisfied. A third option is for the federal government to mandate that states must accept out-of-state policies rather than simply allowing them the option to do so, as the current law maintains. Legislators concerned about federal government overreach, however, may oppose such a mandate.

Opponents of cross-state health insurance policies claim that, if broadly enacted, these would lead to a “race to the bottom” as health insurers flock to states with the least restrictive policies and fewest consumer protections. In theory, insurers operating within less restrictive regulatory environments would attract younger, healthier customers since they could offer inexpensive plans with less comprehensive coverage. Meanwhile, insurers operating under more restrictive environments that mandate extensive coverage would attract a disproportionate number of older and unhealthier people, creating a prohibitively costly risk pool that is unsustainable in the long run without increasing premiums or reducing coverage. Critics also contend that if insurers were allowed to sell policies out-of-state, they would be less accountable to many of their out-of-state consumers, since regulators in one state do not have the authority to enforce laws and address improper practices in another state. Overall, critics assert, cross-state health insurance policies likely would benefit younger and healthier people interested in purchasing inexpensive policies; however, older customers, and those with pre-existing conditions, would be adversely affected.