Why Selling Health Insurance Over State Lines Is A Bad Idea

A major Republican idea for health care is to allow insurance to be sold across state lines. The problem is that this would allow insurance companies to all operate out of the states with the weakest laws to protect consumers against the abuses by the insurance industry. The Senate health care reform bill does allow for such sales, but only after placing new restrictions upon the insurance industry.

My fear is that, in the absence of federal regulation, allowing sales of insurance across state lines will result in a far greater number of claims being denied without good reason. Ezra Klein looked at the economics of this, citing a report by the Congressional Budget Office:

As it happens, the Congressional Budget Office looked at a bill along these lines back in 2005. They found that the legislation wouldn’t change the number of the uninsured and would save the federal government about $12 billion between 2007 and 2015. That is to say, it would do very little in the aggregate.

But those top-line numbers hid a more depressing story. The legislation “would reduce the price of individual health insurance coverage for people expected to have relatively low health care costs, while increasing the price of coverage for those expected to have relatively high health care costs,” CBO said. “Therefore, CBO expects that there would be an increase in the number of relatively healthy individuals, and a decrease in the number of individuals expected to have relatively high cost, who buy individual coverage.”

That is to say, the legislation would not change the number of insured Americans or save much money, but it would make insurance more expensive for the sick and cheaper for the healthy, and lead to more healthy people with insurance and fewer sick people with insurance. It’s a great proposal if you don’t ever plan to be sick, and if you don’t mind finding out that your insurer doesn’t cover your illness. And it’s the Republican plan for health-care reform.

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13 Comments

  1. 1
    James Frye says:

    RT @ronchusid: Why Selling Health Insurance Over State Lines Is A Bad Idea http://bit.ly/cmAImY #p2 #hcr

  2. 2
    Michael Damico says:

    RT @ronchusid: Why Selling Health Insurance Over State Lines Is A Bad Idea http://bit.ly/cmAImY #p2 #hcr

  3. 3
    Annabeth Amerine says:

    RT @ronchusid: Why Selling Health Insurance Over State Lines Is A Bad Idea http://bit.ly/cmAImY #p2 #hcr

  4. 4
    Fletch says:

    <i>The problem is that this would allow insurance companies to all operate out of the states with the weakest laws to protect consumers against the abuses by the insurance industry.</i>
     
    Why would anybody believe that?
    Do all retailers use the WalMart ‘model’?
    Are all restaurants Taco Bell?
    The Senate Bill mandates that 90% of receipts are paid out for claims. Profit becomes 10% of receipts plus investment minus overhead. Which would you want as a company exec– 1 mil people paying $5K/yr or 1 mil people paying $10k/yr?
    It doesn’t cost extra to administer a more expensive plan- the extra profit flows straight to the bottom line.

  5. 5
    Ron Chusid says:

    The analogies to WalMart or Taco Bell do not apply at all. It is not a matter of using someone’s business model but of insurance companies seeking to reduce regulation.

    The comment on the Senate bill is irrelevant. The opposition to sales over state lines is based upon the current situation. This Senate bill does allow sales over state lines, which is then possible exactly because there will be restrictions on insurance companies which are not currently present.

    The line re cost of more expensive plans also misses the point. The issue is not whether there will be more expensive plans but that insurance companies will have greater ability to deny claims and limit coverage for those with medical problems and whether people with medical problems will be forced into more expensive plans if they can get coverage at all.

  6. 6
    Alan Brown says:

    » Why Selling Health Insurance Over State Lines Is A Bad Idea …: The legislation “would reduce the price of indi… http://bit.ly/97H2WW

  7. 7
    Ronald Striker says:

    » Why Selling Health Insurance Over State Lines Is A Bad Idea …: The legislation “would reduce the price of indi… http://bit.ly/cLISxv

  8. 8
    Pete Conde says:

    » Why Selling Health Insurance Over State Lines Is A Bad Idea … http://bit.ly/bpZeY7

  9. 9
    Rene Truffaud says:

    » Why Selling Health Insurance Over State Lines Is A Bad Idea …: A major Republican idea for health care is to a… http://bit.ly/cg2qKJ

  10. 10
    Leanne Thomas says:

    » Why Selling Health Insurance Over State Lines Is A Bad Idea …: A major Republican idea for health care is to a… http://bit.ly/cg2qKJ

  11. 11
    Deeva Renata says:

    "» Why Selling Health Insurance Over State Lines Is A Bad Idea …" http://tinyurl.com/yezw4ck

  12. 12
    Chet says:

    The Congress can make laws because only this power has been granted to them by the Constitution. This ability is limited by the the Bill of Rights to exclude “powers not delegated to the United States by the Constitution”[1]. Because of this limitation, some have asked whether the Congress has the legal authority to create an individual mandate or to impose limitations on insurance providers.
    The “commerce clause” is used to claim Constitutional justification for the reshaping of health care[2]. Yet this blog argues against selling insurance against state lines by highlighting the failure of Congress to effectively “regulate Commerce […] among the several States”.
    What are your thoughts?
     
    [1] http://www.archives.gov/exhibits/charters/bill_of_rights_transcript.html
    [2] http://www.speaker.gov/newsroom/factcheck?id=0107

  13. 13
    Ron Chusid says:

    I think you misunderstand the argument. This is not highlighting the failure of Congress to effectively regulate commerce (in this case selling of insurance over state lines). Insurance cannot safely be sold over state lines in absence of regulations to properly handle this–which is what the Republicans are advocating. Once we have adequate federal regulations then it would be possible to sell insurance over state lines.

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