Contrary to their claims, their plan won’t result in insurance sales across state lines.
Before I get into the meat of this post, let me recommend Peter Suderman’s excellent analysis of why the Obamacare repeal effort failed. Conservatives and libertarians will have to fight this battle again in the future. Understanding why we failed this time is key to succeeding next time.
A group of Democrats and Republicans in Congress calling themselves the Problem Solvers Caucus (PSC) have put forward a proposal to “fix” Obamacare. As noted in my previous post, what it amounts to is taxpayers getting to spend more to prop up the broken Obamacare exchanges.
So how does PSC hope to attract support from conservative Republicans? It is likely PSC members will claim their proposal allows insurance companies to sell policies across state lines, something that conservatives have been pushing for many years.
Conservatives shouldn’t fall for it.
The PSC proposal does nothing more than push the Department of Health and Human Services (HHS) to issue regulations under Section 1333 of Obamacare. That section “allows states to enter into Health Care Choice Compacts, which allow insurers to sell across state lines in participating states.”
So, what are the chances that states will enter into these compacts?
Slim and none.
Suppose some legislators in both Wisconsin and Michigan decide they want to enter into a compact. It won’t be long before they get serious pushback from the insurance companies in their respective states. Those insurers won’t want to face competition from another state and so will lobby furiously to prevent any compact. They will also get pushback from interest groups that won’t want competition to undermine the regulations that their state imposes on health insurance. Those interest groups will include health care groups that benefit from those regulations and from so-called “consumer” advocates (i.e., left-wing groups) that believe regulations actually protect consumers.
This might not be a problem if there were some powerful interest groups on the “pro” side of this issue. Unfortunately, there is almost no lobbying group that has a vested interest in pushing a Health Care Choice Compact. That is evidenced by the fact that it has been over seven years since Obamacare became law and HHS hasn’t released guidelines on such compacts.
The only way that selling health insurance across state lines will ever become reality is if states change theirs laws or Congress passes a law that prevents state governments from prohibiting the interstate purchase of health insurance.
However, not only do I warn against conservative Republicans falling for the false promise in the PSC proposal, I’d also warn against them putting much stock in interstate purchase of health insurance resulting in increased competition. In 2010 Georgia allowed insurers from out of state to sell insurance in the Peach State, but, unfortunately, no insurance company has done so.
This may have been due to bad timing. Georgia made that change just as Obamacare became law, and insurers may have been hesitant to begin selling policies in a new state until they knew how Obamacare would work. And now that Obamacare isn’t working — i.e., insurers can’t make any money on the exchanges — there is no point going into Georgia.
On the other hand, the model most health insurers use may make selling across state lines very difficult. Most policies sold by health insurers are based on the “network model.” An insurer tries to get groups of physicians, hospitals, and other health care providers to accept the reimbursement that the insurer offers. Those that do become part of the insurer’s network. When a policyholder uses a health care provider in the insurer’s network, he is usually rewarded by either no out-of-pocket costs or lower out-of-pocket costs than if he went to a provider outside the network. Insurance companies and policyholders like this model because it helps keep prices down. Health care providers like it because it means they have an advantage in attracting patients away from their competitors that are not in the network.
Unfortunately, what this means for interstate competition is that a health insurance company cannot merely open an office in a new state. It has to invest in creating a network in the new state, something that is not easy to do.
Now, this does not mean that Congress shouldn’t give insurers the freedom to sell across state lines. It is possible that different models of health insurance, like indemnity insurance, might thrive under such freedom. Or, someone might find a cheaper way to set up a new network or invent new models of health insurance that are easy to sell across state lines.
Regardless, Republicans should not oversell the benefits of interstate competition. Chances are the benefits of that — reduced health insurance premiums — are many years in the future. But, more immediately, Republicans shouldn’t let themselves be played for suckers by believing the PSC’s claims that its proposal will permit the selling of insurance across state lines.
Crossposted at Bombthrowers.
Photo: Crazy Egg