People who are opposed to the current health care reform bills are often in favor of allowing individuals and businesses to purchase health insurance across state lines, and typically mention that such a practice would encourage “real competition” among insurers and would improve choices for consumers. But I imagine that proponents of such a system are picturing health insurance companies operating in much the same way that they do today – based in all 50 states – with consumers able to choose from a wide range of plans and benefits, and lower prices because of the increased competition.
In reality, I imagine that such a scenario would actually make our health insurance industry look a lot like our credit card industry. Where does your credit card payment go? Chances are, it’s not to the state where you live. In 1978, the Supreme Court ruled that nationally chartered banks only have to abide by the laws in the state where they are incorporated, not in all the states where they conduct business. This made states without caps on interest rates a favorite incorporation spot for credit card companies – and of course the increased tax revenue meant that the states in question had little motivation to limit the amount of interest a bank could charge.
Most individual state insurance commissioners have fought hard to win consumer protections and regulate how insurance companies do business, but the extent of those protections varies tremendously from one state to another. Health insurance companies – like most businesses – are focused on the bottom line (as publicly traded companies, they have to be). If the opportunity arises for them to set up shop in one state and do business in all states, it would be financially foolish of them to pass on that opportunity. And chances are, the states with the most lenient regulations and the fewest consumer protections would be the favored incorporation spots for health insurance carriers. States that don’t have high risk pools (and thus don’t charge their insurance carriers a fee to maintain the risk pool) would likely be popular, as would states that have few benefit mandates.
I’m not opposed to the idea of health insurance companies that could operate on a national basis, allowing people to keep their health insurance if they move to another state. As an example, there are Blue Cross Blue Shield plans in all 50 states, but if one of our Anthem clients moves out of Colorado, she must apply for a new plan in her new state under current regulations. That is frustrating for the insured, especially if she likes her current plan design or if she has developed a health condition that will make going through new underwriting a difficult process. It does make sense to allow people to keep their health insurance plans if they move out of state but to an area where they still have good network coverage. But such a plan would have to be overseen by federal – rather than state – regulations. Simply opening things up to allowing health insurance companies to base themselves in any state they choose, operate under that state’s laws, and sell health insurance in all states, would take us to the lowest common denominator in terms of consumer protections.