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Crossing State Lines Is No Easy Jaunt for Insurers and Local Regulators

GOP’s intention to allow companies to sell policies nationwide using one state’s rules raises questions within industry and government

The Wall Street Journal
By Stephanie Armour and
Anna Wilde Mathews
Updated Dec. 3, 2016 6:29 p.m. ET

As Republicans gear up to overhaul the federal health law, they face pushback from a couple unexpected corners over one of their goals: Giving health insurers greater ability to sell policies to consumers across state lines.

Republicans for some time have billed interstate sales of insurance as a way to heighten competition and lower costs. It is one of the few specific health initiatives displayed on President-elect Donald Trump’s transition website.

Tom Price (R., Ga.), the chairman of the House Budget Committee nominated by Mr. Trump to head the Department of Health and Human Services, has backed interstate sales and is likely to push the idea.

Still, the GOP is drawing some opposition from state insurance regulators—many of them Republican—and insurance-industry officials, who question how such a plan would work, given that many aspects of insurance are regulated differently by each state. “That sounds like a silver bullet to solve a major problem, and there are no silver bullets,” said Louisiana Insurance Commissioner Jim Donelon. “There are no simple answers.”

Some Democrats say there might be room to compromise on earlier GOP proposals that would allow for interstate sales, but they express concern about the erosion of state consumer protections.

State officials argue that sales across state lines would cut against the Trump transition team’s pledge to bolster states’ traditional role in regulating the insurance industry and to dial back federal powers unleashed by the Affordable Care Act.

States currently make rules on what specific benefits individual policies must cover. They take the lead on reviewing premiums and set guidelines for how many doctors and hospitals plans need to include. They provide consumer protection in disputes and monitor insurers’ financial health.

Insurers can sell plans to consumers in any state as long as they are licensed in that state and follow its rules. So national companies today already offer individual policies across the U.S.

What Republicans want is to allow insurers to sell policies approved in one state, where they are licensed or based, to consumers in other states. Policies generally would only need to meet the home-state regulations.

“What I’d like to see is a private system without the artificial lines around every state,” Mr. Trump said during a GOP presidential debate in 2015.

Supporters say freedom to sell across state lines would spur competition, allow consumers to buy plans that better suit their health needs and decrease regulatory burdens that drive up costs.

Groups such as the National Association of Insurance Commissioners argue that insurers might flock to states with the most-limited requirements for the industry. That could result in some plans carrying cheaper premiums, though more limited coverage. “That really is a race to the bottom in terms of what the regulatory playing field looks like,” said Pat Allen, director of the Department of Consumer and Business Services in Oregon.

In states requiring locally-licensed insurers to offer extensive coverage, bare-bones out-of-state policies might draw healthy enrollees, leaving those with health problems to broader to more-expensive coverage under local rules, state regulators say. Some states might feel pressure to relax standards to level the playing field for locally registered companies.

Consumer groups raise similar concerns. Families USA, a consumer-health lobby that supports the ACA, said it worries insurance sales across state lines risk “compromising essential consumer protections.”

It isn’t yet clear how congressional Republicans would enact interstate insurance sales. A spokesman for trade group America’s Health Insurance Plans said insurers support competition, but they are concerned about how interstate sales would be implemented. “It all boils down to the details.”

Insurance executives question how much interstate sales would unleash competition. Premiums are closely tied to underlying costs, such as rates paid to local doctors and hospitals and projected health needs of enrollees. The regulatory environment notwithstanding, selling coverage in any given state would require an insurer to have a local network of allied doctors and hospitals, something new entrants to a market might find costly to arrange. “In order to offer more value, you will need to have relationships and contracts with the providers in a state,” said Paul Markovich, chief executive of Blue Shield of California.

Insurers almost certainly wouldn’t sell coverage at the same price in multiple states, said Jim O’Connor, a principal at consultants Milliman Inc. They would adjust rates to reflect costs in each location, even if all the policies were under the same regulatory regime, he said.

‘“No one should be under the illusion you can dramatically lower the cost of insurance in Los Angeles if you buy an Arkansas policy,” said Edmund Haislmaier, a senior research fellow at the Heritage Foundation, a conservative think tank. He said, however, that interstate sales could carry regional benefits.

In recent years, a handful of states passed legislation setting up special agreements that allow insurers in one state to sell coverage to individuals in another state, but participation has been sparse. A provision in the Affordable Care Act allows insurers to sell individual policies across state lines through such compacts, though that program hasn’t managed to get off the ground, according to the NAIC.

The Republican push for interstate sales is likely to gain traction in the GOP-controlled Congress. In addition to Mr. Trump’s support, such a change in the rules is backed by Republicans including House Speaker Paul Ryan (R., Wis.), Wisconsin Gov. Scott Walker, Senator Orrin Hatch (R., Utah) and former Louisiana Gov. Bobby Jindal.

“It will likely happen, so the details matter,” Larry Levitt, a senior vice president at the health-sector research group Kaiser Family Foundation, said.