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Competitive cross-state insurance selling lets states compete

Posted: October 13, 2015 - 11:03pm

Selling policies across state lines has been a key item in Republican health care reform alternatives. But only about 5 percent of the policies sold in the nation are to individuals. There are many reasons for the paucity of sales of these policies, which lack the employer-based tax advantages as well as financial value to agents selling policies one at a time.

There are several versions of “cross-state selling.” One version allows individuals to purchase insurance from any state, thus in theory, increasing choice and circumventing some home state coverage mandates. The argument against this approach is that insurance products will be promoted from states with the worst coverage and the fewest consumer protections. It is argued that insurers will relocate to the states with the weakest consumer protections.

However, as the concept matures there is another version: “competitive cross-state selling.” That is, let the states compete. Today, consumers are excluded from any option to purchase insurance under the other 49 state laws. Under pure cross-state selling, products in all of the other 49 states would be available for sale. The middle ground is “state-based competition” and it provides a solution with a surprise “Super Bonus.”

To begin, any federal cross-state legislation should respect state laws and state officials to protect consumers. Federal cross-state legislation should give each state insurance commissioner the right to “veto” the sales from a number of other states if they do not meet requirements, such as having a State Guarantee Association or policies that do not have adequate provider networks. Not every state has a health insurance Guarantee Association, which requires other insurers to assume policies if the issuing company goes bankrupt. It is reasonable for an insurance commissioner not to want those policies sold in their states.

If enough state vetoes overlapped, insurers based in those frequently vetoed states would be at a competitive disadvantage for selling nationally. Those states would have to improve insurance laws and consumer protections to be nationally competitive. States with high cost coverage and a plethora of expensive mandates would have to lessen those burdens for in-state companies to compete nationally.

Here is the “Super Bonus” to this competitive version:

The major problem of any national health reform legislation (Republican or Democrat) is that, at some point, the federal government usually defines what is covered and what is not covered (e.g. ObamaCare and the Essential Mandated Benefits). By putting states in competition for national marketing of their home state insurance companies, there is no single or centralized source, board or bureaucracy that sets the benefits. Benefit provisions and coverages will be developed based on market demands and competition, not lobbyists and politically connected vendors. The interstate competition for optimum national marketing will create a rush to the acceptable “consensus middle.”

A competitive cross-state selling approach would create a free market framework for expanded sales of individual insurance policies.

The discriminatory tax and an effective distribution system for selling individual polices require separate legislative and creative solutions.

Ronald E. Bachman FSA, MAAA, is a Senior Fellow at the Georgia Public Policy Foundation.

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