Did You Know? Purchasing Insurance Across State Lines


Across State Lines

Did you know that the Affordable Care Act (ACA) already provides a mechanism to purchase insurance across state lines? Section 1333 of the ACA (42 USC § 18053) directs the Secretary of Health and Human Services to issue regulations no later than July 1, 2013 to allow states to enter into interstate compacts. However, no such regulations have been issued.
The appeal of purchasing insurance across state lines is that premiums are so much lower in some locations compared to others. Who wouldn’t want to buy a policy in the next state over for $260 per month (40 year old; Los Angeles; 2018 bronze individual plan) when the only policies where you live cost $350 (40 year old; Carson City; 2018 bronze individual plan)? Why can’t we buy health insurance policies from location where they are 35% cheaper?
It is true that interstate compacts could allow insurers to streamline regulatory processes and slightly reduce premiums. While insurers would appreciate any operational and regulatory efficiencies that could be provided, it is unlikely that this would reduce premiums more than a percent or two.
It is important to note that in our example, we would save 35% by purchasing a policy in Los Angeles, which lies in one of the highest taxed, most regulated states in the country. Moreover, a bronze plan in Las Vegas only costs $275 per month (40 year old; Clark County; 2018 bronze individual plan), 27% less than in Carson City – and that’s in the same state. While state variations in regulation certainly play a part in determining the cost of insurance, perhaps there is a larger force that impacts the cost of health insurance coverage.
Interestingly, states could have entered into agreements to allow insurers to sell across state lines before the ACA. It is true that Section 10 of Article 1 of the U.S. Constitution says that “No State shall, without the Consent of Congress … enter into any Agreement or Compact with another State.” However, the Supreme Court has ruled that that Congressional approval is not required for a state to pass a law recognizing another state’s laws (U.S. Steel Corp. v. Multistate Tax Comm’n, 1978). Therefore, interstate compacts could have been entered into without the ACA and arguably could still be entered into without the regulation that is required by the ACA but was never issued.
For instance, 44 states and the District of Columbia have entered into the Interstate Insurance Product Regulation Compact (IIPRC) which regulates life insurance, annuities, disability income, and long-term care insurance. However, these forms of insurance are different from health insurance as they are not dependent on their use in a specific geographic location.
For example, the triggering event for a life insurance claim, the death of the insured, creates a payout that is a specific dollar amount as indicated in the policy. On the other hand, health insurance policies cover the cost of claims from medical providers which can vary significantly from one geographic location to another. Specialty and other providers located in Carson City may bill 30% more than the same providers in Los Angeles resulting in significantly lower health insurance premiums in Los Angeles compared to Carson City.
So while you might want to buy a policy in the next state over for $260 per month when the only policies available to you cost $350, the problem is that it is very unlikely that you are going to get a majority of your care in the next state over. You are going to get your care where you live- where it costs $350 per month.
The correct question we should ask is: What insurer would want to sell a policy to you at $260 per month when you live in an area where the cost of care is $350? Answer: none. Insurers need to cover their costs- otherwise they won’t be around very long to pay your claims.
It is true that changes to regulations could allow for the sale across state lines, but if no one is going to offer such coverage, why go through the trouble of issuing regulations to do so? The barriers to purchasing insurance across state lines are not really a regulatory issue. The barriers are economic. Changing laws to allow the sale of insurance across state lines won’t fix health care. Instead we must pull economic levers like supply and demand.