Interstate Health Insurance?

If the Republicans win the general election in the fall and Obamacare is repealed, what happens? Several common threads run through the various strategies from Republican front runners.

The most odious feature of the the Patient Protection and Affordable Care Act (PPACA) among conservatives seems to be the mandate, so it will go. If you don’t want to buy insurance, you don’t have to. If for example you get pneumonia from an untreated infection, you can go to the hospital and get free care. For the hospital to remain in business however, they have to cover the cost of the “free” care with higher costs to the paying customers – the insurance companies. And remember that emergency care is the most expensive way to deliver care, bar none. The cost to those who buy insurance will go up to subsidize the uninsured. This doesn’t do anything to lower costs, it’s what we had before and it is a silly way to keep everybody healthy.

So everyone, republicans included, realizes that steps need to be taken to bring down the cost of healthcare and one thing you hear constantly is that allowing the purchase of insurance across states lines will increase competition and thereby lower costs. Will it work? It works with widgets. If someone in another state sells widgets at a lower price than that can be bought here, then go there to buy where the price is lower.

The story with health insurance is quite a bit more complex. The PPACA includes provisions that already allow the purchase of health insurance across state lines. The difference between the PPACA compact provisions and earlier interstate sales provisions are that the PPACA requires all states to comply with a minimum level of insurance coverage. But interstate sales is not happening, so why?

Insurance companies make money by negotiating prices for “healthcare commodities” – doctors fees, hospital costs, laboratory costs, drug costs etc. All these costs are negotiated to control costs to the policy holders. The nature of the policies sold in a state are regulated in the state.

Georgia, Maine, and Wyoming are states that have taken the step to promote interstate sales. The problem is not that regulations prevent it, but rather no insurers are interested. In none of the aforementioned states, has an out of state insurer expressed interest in selling in those states. This is partly due to the fact that out of state insurers will still have to abide by the rules in the states where they sell.

Eventually it may happen. There is a case to be made that costs are lower the bigger the pool of insured, and crossing state lines could expand the pool for a given insurer. In some markets such as large metropolitan areas that cross state lines, this could happen sooner rather than later, but the development will take time. How how much will this lower the cost to a consumer?

Experts cite the fact that insurance costs depends on how healthy a given group of policy holders are. Arkansans currently have the highest obesity rate in the country, Colorado the lowest. If an insurer from Colorado wanted to sell in Arkansas, the policy costs would be base on the obese Arkansas pool, not the fit Colorado pool. Consequently what cost savings may occur would be small.

In a final irony, a catch-22 of sorts, interstate sales of insurance means federal regulation, anathema to generally states rights conservatives.

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