Proposals to allow for the sale of health insurance across state lines have long been touted as one way of effectively lowering the price of health insurance, particularly in states where there is a highly concentrated insurance market. The argument goes that resultant increased competition would encourage a state's existing health plans to lower prices in the face of the new market entrants.
To date, while 17 states have entertained proposals to allow these insurance product sales, only six states - Georgia, Maine, Wyoming, Rhode Island, Washington and Kentucky have passed such legislation. To determine what impact these laws are having, a team of researchers led by Sabrina Corlette, research professor and project director at the Center on Health Insurance Reform at Georgetown University Health Policy Institute, examined whether these laws are having their intended effect on these markets.
Healthcare Finance News Senior Editor Chris Anderson recently spoke with Corlette to gain additional insight of how effectively these laws have been.
Q: Was lowering insurance premiums the primary reason these state passed across state lines laws?
A: Yes. A primary goal was to lower the cost of insurance and another goal was to increase the number of choices available to people, but I think underlying the idea of increasing choice was to drive down prices.
Q: Did you discover any barriers for insurance companies who might want to sell their products across state lines in new market?
A: The number one issue our respondents identified (as) a barrier to entering these markets is building a network of providers that will agree to reimbursements that will allow the company to charge a competitive price. And these laws don't address that problem. The overall attractiveness of a market to a carrier has a lot more to do with being able to get a critical mass of enrollees quickly so they can build a provider network that would be competitive.
Q: So what are some things states can do to help increase competition and lower prices?
A: First of all, I wouldn't waste my time with across state line laws. Healthcare is local. So are there local, domestic carriers or integrated plans that (the state) could encourage to grow. There are states that are working with Medicaid carriers, because potentially they could get a commercial license and expand into the commercial market. There are also these CO-OPs that were created under the Affordable Care Act and there is a significant state role to help them create these CO-OPs. If your goal is to get more carries in the market there are things that state regulators and state officials can do.
Q: Is more competition an effective way to drive down costs?
A: One question people need to ask is: will bringing in a new carrier actually address the underlying cost drivers of why health insurance is so expensive? And the answer there is: "maybe a little bit." But the fundamental problem is what is going on with the underlying cost of care. Some would argue that the more carriers you have in a market, the less leverage they have over provider groups, particularly big hospital networks who just charge what they want to charge. So there is a real risk that if you have a whole bunch of carriers that don't have a lot of market clout, they are not going to be able to go toe-to-toe with those big hospital networks. I think the notion that bringing in a whole bunch of new insurance companies into the market will bring prices down for everybody is a nice talking point, but it doesn't get to the fundamental problem.