In the Two Minute Drill, we explain complex issues in politics in 500 words or less (roughly the amount of words it takes the average adult two minutes to read on a monitor). Politics just isn’t always that complicated. Without the fluff and partisan bias, even the most complex of our political differences can be explained succinctly. This week: diving into the debate over selling insurance across state lines. This is The Two Minute Drill for May 6, 2016.
In February, Donald Trump released a seven-point plan to overhaul American healthcare – or, as Trump puts it, “healthcare reform to make America great again.”
In broad terms, Trump’s proposal follows Republican orthodoxy. Of course, Trump promises to “ask Congress to immediately deliver a full repeal of Obamacare.” The key insurance reforms Trump has supported as a “replacement” include permitting insurance companies to go back to refusing coverage for preexisting conditions (that’s right, “Trumpcare” contains no guaranteed access to health insurance), fostering a greater reliance on health savings accounts, and permitting insurance companies to sell their insurance across state lines.
It would be Insurance Without Borders, if you will.
Is this a good idea?
The Explanation (500 or Bust)
The idea of selling health insurance across state lines has been around for more than a decade. But it’s seeing renewed scrutiny as presidential candidates – namely, Trump and Ted Cruz – have included it in their campaign platforms.
Supporters of the idea have argued that selling insurance plans across state lines would provide consumers with more choice due to improved competition. Healthcare costs would be lowered because insurers would not have to follow state-specific regulations, and those savings, supporters argue, could then be passed along to the consumer. In other words, as Ted Cruz put it during a Republican debate in Iowa, selling across state lines would create a “true 50-state national marketplace, which will drive down [prices].”
There are a few problems with this plan.
First, it’s important to note that there is no federal prohibition on selling health insurance across state lines. In fact, Obamacare includes provisions to encourage regional and national healthcare insurance sales. Thus, as the New York Times has noted, it is state law, not federal ones, that restrict local insurance competition. Local lawmakers in each state have set unique requirements for selling health insurance in their states.
But even when such competition is permitted, insurance companies have shown no interest. Between 2008 and 2011, six states – Georgia, Kentucky, Maine, Rhode Island, Washington, and Wyoming – enacted legislation allowing insurance to be bought and sold across state lines. Not one of these states saw a single insurer enter a new market or offer a new product. Why was that the case? For one thing, insurers face “enormous difficulty” building new networks. So while Jordan in North Carolina could theoretically buy a plan sold in Arizona for a fraction of the cost, Arizona carriers would likely not have networks in North Carolina. Jordan could buy the plan, but how would he ever use it?
The barriers to entry are a huge reason why this isn’t already happening. Another reason, however, is that the benefits of such a system, for both insurer and consumer, is almost negligible. “Selling insurance nationwide may be modestly helpful,” James Capretta, a healthcare expert at the conservative American Enterprise Institute, wrote in a blog post. “It does not come close to constituting a plan for fixing health care in the United States.”
If such a plan were ever implemented successfully, though, it would present significant risks to consumers. In practice, it would mean the we will have a single national insurance standard. And that standard would be chosen by the health insurance industry. As Ezra Klein noted in 2010, “The industry would put its money into buying the legislature of a small, conservative, economically depressed state. The deal would be simple: Let us write the regulations and we’ll bring thousands of jobs and tax dollars to you. Someone will take it.”
The result will be much like what happened in the credit card industry. Consumer protection would begin to erode as a race-to-the-bottom intensifies, and policyholders would be left with inadequate coverage that could actually lead to higher premiums for some people.
Word Count: 512 (bust)
In case you missed it, check out The Weekly Column. Every candidate running for president wants to do one thing: repeal the Affordable Care Act’s “Cadillac Tax.” This is why every candidate is wrong. Read the Column for May 3, 2016.