Health insurance across state lines

Amy Higgins

There's a lot of hubbub about health insurance and how much choice consumers have when buying it. States have mandates that require consumers to purchase plans that include coverage for things they might not need (for autism therapy and pregnancy, for example). And the more coverage people are required to purchase, the costlier their premiums will be.

In response to these concerns, some lawmakers want to allow out-of-state insurance companies to sell policies in their states to create more competition with in-state insurers.

Georgia, for example passed a law in June 2011 allowing individuals to buy plans from other states; companies still must purchase their group plans from Georgia-licensed insurers. The law, the first of its kind in the United States, took effect July 1. The Arizona Legislature also passed a bill in April 2011 allowing out-of-state insurance providers to sell to its residents, but it was vetoed by Gov. Jan Brewer.

Such legislation raises interesting questions about whether consumers should be able to bypass their state's mandates when it comes to health insurance.

All in favor

Those who support selling insurance policies from out-of-state companies say consumers will have broader options and, therefore, can buy coverage that's more affordable. Premiums vary greatly among states; by shopping out of state, consumers might be able to find a plan that's cheaper.

Allowing out-of-state insurance sales also gives consumers the ability to get health insurance plans that cater more to their specific health care needs. For example, some states, including Illinois, Maine, Massachusetts and Nevada, require health insurers selling plans on the individual market to cover some autism therapy, according to the National Conference of State Legislatures. If such states allowed residents to buy out-of-state coverage, those who didn't need autism coverage would be able to buy policies from providers whose states don't require it.

Permitting companies to sell insurance in other states would create more competition, supporters say, and give consumers more choice in the insurance market. Right now, states loading down their laws with mandated coverage are making their insurance markets less competitive, according to conservative think tank the Heritage Foundation, because they are becoming dominated by the few large insurers that can afford to stay in business. With fewer companies to contend with, insurers may be less inclined to keep their costs competitive.

Shortcomings of cross-state sales

Given the option, consumers may choose to hunt down the cheapest insurance coverage, according to opponents of out-of-state insurance sales. This could leave them lacking necessary health coverage down the road.

Moreover, some important mandates will suffer if states give their residents the choice to purchase insurance out of state, according to a 2010 analysis by the Urban Institute's Health Policy Center. If those who need only bare-bones coverage jump ship and buy coverage from another state, the in-state policies will be left only with high-risk individuals who need extra coverage. Without everyone buying in, autism coverage mandates, for instance, could become unaffordable and be eliminated -- and those who rely on these mandates may be left in a lurch.

Another concern is that out-of-state insurance providers might market policies to younger, healthier individuals, according to a January article from Kaiser Health News. That could leave the in-state insurance pool filled with older and sicker individuals who have no other choice -- and who would face increasing rates.

Resolving disputes between residents and out-of-state companies would present further difficulties for state insurance departments, according to Kaiser.

Working with health care reform

How do health care reform and the upcoming insurance mandate tie into cross-state insurance? According to the Urban Institute, the health care reform law includes provisions that allow purchasing health insurance across state lines.

However, the law requires all states to comply with a minimum level of insurance regulation, according to the Urban Institute. The federal health care reform law requires all insurers to sell coverage that meets certain requirements -- and they won't be able to avoid it by setting up shop in one state and selling in another. Additionally, a state must join a compact with one or more states to sell insurance across state lines.