Health Care Debate: Selling Insurance Across State Lines

The socialized medicine scheme proposed in the house and senate either avoids the argument regarding selling insurance across state lines or nullifies the benefits of selling insurance across state lines. (1)

What does selling insurance across state lines mean? Why don't insurers presently sell insurance across state lines? Why should insurers sell insurance across state lines? Are the many and several states proposing legislation regarding selling insurance across state lines?

What does selling insurance across state lines mean?

Basically selling insurance across state lines means that insurance regulated in one state could be purchased in another state which has separate insurance regulations. (2) That a citizen of New York could buy a policy that is regulated by the state of Arkansas.

Why don't insurers presently sell insurance across state lines?

The states retain certain rights based in the 10th Amendment. Insurance is one of those retained rights. (3) (4) (5) (6) Hence insurance is regulated on a state by state basis. Furthermore, the fifty states have differing insurance laws and regulations with each state having a separate insurance commissioner that enforces the insurance laws and regulations of each state.

An insurance company can sell policies in multiple states, however the insurer must license itself separately in each state that it wants to market its product. (7) The separate licensing in each state is required as each state has differing insurance laws and mandates. Hence the insurance policy sold in Nevada by XYZ insurance company is different that the insurance policy sold by XYZ insurance company in Florida. Therefore, a policy form that meets the insurance laws and mandates of Florida can't be sold in Nevada as the policy form does not meet the insurance laws and mandates of Nevada.

However, its very important to note that basic policy coverage and basic policy language generally do not differ widely from state to state. Why? One reason is the New York State Insurance Department. New York created the model for many policies. (8) For example, New York created the model coverage and language associated with the standard fire policy. They also created the model coverage and language for the personal auto policy (PAP). These models created by New York can be found adopted by many states. Hence the many states adopt insurance coverage, laws, and regulation that work in another state. Another reason basic policy coverage and language do not differ widely between the states is that the National Association of Insurance Commissioners propose and adopt many model regulations that then go onto be adopted by many states. (9)

Insurance law and regulation is a retained state right per the 10th Amendment. Currently insurance is not sold across state lines due to the conflict of insurance laws and mandated coverage of one particular state in regards to another particular state.

Why should health insurance be sold across state lines?

The idea of selling health insurance across state lines is not a new idea. The idea can be traced back to a 2005 proposal by Representative John Shadegg of Arizona. (10)

One of many items that drive up cost in health care and consequently health insurance are state mandates. (11) State mandates basically broaden coverage beyond the basic intended coverage under an insurance policy form.

As mentioned above basic coverage afforded by an insurance policy form is rather constant in the fifty states. That is to say, the basic language of a major medical policy does not vary widely. However, state mandated coverage varies widely. Currently 1,823 mandates exist among the several and many states. (12) The state with the most mandates is Minnesota with 62 mandates and the state with the least mandates is Idaho with 13.

What is a mandated coverage that broadens basic coverage? Examples of mandated coverage vary by state but several examples are hair transplants, acupuncture, massage therapy, in vitro fertilization, morbid obesity, and smoking cessation . (13) (14) Its estimated that mandated coverage increases the cost of insurance by 5%. However, the 5% cost increase associated with mandates does not reflect insurers having to administer varying policy forms to adhere to the 1,823 differing mandates across the several and many states. Hence one could clearly add a conservative estimate of an addition 2% onto the above 5% figure for administrative expense to comply with policy forms that vary i.e. administration of 1,843 mandates.

The mandated coverage also drives out insurers and hence competition within particular states. (15) The more and stricter the mandates, the fewer insurers that want to provide insurance. For example, New Jersey with many mandates and strict mandates only has a handful of insurers willing to participate. Hence the mandates create insurance oligopolies offering coverage rather than a wide spectrum of insurers competing in a free market.

Given the discussion of mandates above, the selling insurance across state lines proposition is about freedom to choose leading to the consumer finding affordable coverage to fit individual needs. For example, say an individual in New Jersey wants to buy a basic health insurance policy given a fixed dollar budget. The individual is faced with a staggering cost for health insurance in New Jersey. However, if the same individual could buy a basic health insurance policy based on coverage and mandates of the state of Kentucky he/she could buy the coverage at a fraction of the price. (16) In other words, the competition among the states, giving the consumer the opportunity to match coverage and mandates that fit their needs and budget, reduces cost.

What are states doing about selling across state lines?

The answer to what states are doing regarding selling insurance across state lines comes in two parts: actual legislation to allow purchases across state lines and the blocking of the federal government to require citizens of the several and many states to purchase insurance on a mandatory basis.

Legislators in the state of Georgia are currently considering a proposal to allow citizens of Georgia to purchase insurance across state lines. (17) Further, twenty eight states have proposed legislation known as "health care nullification legislation". The legislation effectively nullifies any future national health care plan within their borders and/or makes it illegal to require state citizens to purchase health insurance. One state, Arizona, has already passed a nullification law while a nullification law has passed the Senate of the state of Virginia. (18)(19)

Summary

Selling insurance across state lines allows citizens more freedom of choice in health insurance purchases resulting a very conservative estimate of a 7% reduction in cost. Presently health insurance is not sold across state lines as insurance is state by state regulated with differing insurance laws and mandated coverage. The many and several states are seriously looking at ways to sell across state lines and legislation is being proposed and discussed.

Notes

Note: if you would like to see what health insurance mandates exist in your particular state, as of 2008, please go to the following link which is a very comprehensive list of mandates for the fifty states:

(17) http://www.timesfreepress.com/news/2010/jan/22/int erstate-insurance-sales-considered-by/

(18) http://www.tenthamendmentcenter.com/nullification/healt h-care/

(19)http://www.qando.net/?p=6911