The ‘Super Bonus’ of Competitive Cross-State Selling of Individual Health Insurance Policies

October 9th, 2015 by Leave a Comment

The Hill ran an article this week criticizing Georgia’s efforts to encourage cross-state selling of health insurance. There are different forms of cross-state selling proposals. While Georgia’s single state one-way process hasn’t led to any changes in the market, it at least allows Georgia is willing to partner with other states and insurers in developing a successful cross-state program.

Some reasons for Georgia’s lack of success:

  1. The bill was passed during the ObamaCare debate when insurers were focused on national health reform
  2. Insurers are not going to be responsive to a solitary state allowing plans and benefit designs from other states.
  3. It would take at least a regional coalition of states to get the attention and efforts of insurance, legal and policy approval staffs to utilize.

Using Georgia law as an example of a failure of cross-state selling is akin to someone in the 1960s using the failure of Corvairs to dismiss the potential of compact cars. Below, Ronald E. Bachman outlines a better approach. 

The ‘Super Bonus’ of Competitive Cross-State Selling of Individual Health Insurance Policies

By Ronald E. Bachman

bachmanSelling policies across state lines has been a key item in Republican health care reform alternatives. But only about 5 percent of the policies sold in the nation are to individuals. There are many reasons for the paucity of sales of these policies, which lack the employer-based tax advantages as well as financial value to agents selling policies one at a time.

There are multiple versions of “cross-state selling.” One version allows individuals to purchase insurance from any state, thus  in theory, increasing choice and circumventing some burdensome and expensive home state coverage mandates. The argument against this approach is that insurance products will be promoted from states with the worst coverage and the fewest consumer protections. In addition, it is argued that insurers will relocate to the states with the weakest consumer protections. In other words, cross-state selling would create a “rush to the bottom of the barrel.”

However, as the concept matures there is another version: “competitive cross-state selling.” That is, let the states compete. Today, consumers are excluded from any option to purchase insurance under the other 49 state laws. Under pure cross-state selling, products in all of the other 49 states would be available for sale. The middle ground is “state-based competition” and it provides a solution with a surprise “Super Bonus.”

To begin, any federal cross-state legislation should respect state laws and state officials elected or appointed to protect consumers. Federal cross-state legislation should give each state insurance commissioner the right to “veto” the sales from some number of other states (i.e. up to 25) if they do not meet basic requirements, such as having a State Guarantee Association or policies that do not have adequate provider networks. Not every state has a health insurance Guarantee Association, which requires other insurers to assume policies if the issuing company goes bankrupt. It is reasonable for an insurance commissioner not to want those policies sold in their states.

If enough state vetoes overlapped, insurers based in those frequently vetoed states would be at a competitive disadvantage for selling nationally. Those states would have to improve their insurance laws and consumer protections to be nationally competitive. Conversely, states with high cost coverage and a plethora of expensive mandates would have to lessen those burdens for their in-state companies to compete nationally.

Here is the “Super Bonus” to this competitive version of cross-state selling:

The major problem of any national health reform legislation (Republican or Democrat) is that, at some point, the federal government usually defines what is covered and what is not covered (e.g. ObamaCare and the Essential Mandated Benefits). By putting states in competition for national marketing of their home state insurance companies, there is no single or centralized source, board or bureaucracy that sets the benefits. Benefit provisions and coverages will be developed based on market demands and competition, not lobbyists and politically connected vendors. The interstate competition for optimum national marketing will create a rush to the acceptable “consensus middle.”

A competitive cross-state selling approach would create a free market framework for expanded sales of individual insurance policies. It is not a silver bullet. The discriminatory tax and an effective distribution system for selling individual polices require separate legislative and creative solutions. Opponents of alternative health reforms can be critical of the catch phrase “cross-state selling.” But rather than taking the easy political shot of “No, because…” it would be more productive to work across ideological lines with a “Yes, if…” attitude that would benefit consumers.

Ronald E. Bachman FSA, MAAA, is a Senior Fellow at the Georgia Public Policy Foundation, an independent think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature. 

© Georgia Public Policy Foundation (October 9, 2015). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.

Leave a Reply

Your email address will not be published. Required fields are marked *

The Georgia Public Policy Foundation has hit another homerun with its Guide to the Issues. This is must reading for anyone interested in public policy in Georgia, and it is an outstanding road map for conservative, common sense solutions to our challengers of today and tomorrow.

Former Georgia Senate Minority Leader Chuck Clay more quotes