Lowball Insurance Plans Fail To Respond to Georgia’s Invitation

The idea is that selling policies across state lines will lower costs and increase the number of insured, but it hasn’t worked that way yet

John Carroll

Last year the Georgia legislature passed a law that gave conservatives a big victory in their fight against health care reform. The state allowed the sale of interstate health insurance products, with supporters confident that they would soon see an influx of new offerings with competitive rates from out-of-state insurers.

But the bustling marketplace that they envisioned never took shape, and there isn’t even a hint that it will.

“Nobody has even asked to be approved to sell across state lines,” Georgia Insurance Commissioner Ralph Hudgens told the Atlanta Journal-Constitution. “We’re dumbfounded. We’re absolutely dumbfounded.”

And they are not alone.

Georgia is one of three states — along with Maine and Wyoming — which passed laws allowing insurers to ignore state lines and bring in new products designed without their mandates in mind. None of the laws worked as planned. Three more states — Washington, Kentucky, and Rhode Island — carried out studies that concluded that a similar statute wouldn’t work in their states either.

“I was surprised by the lack of interest in these laws on the part of the insurers that we spoke with,” says Sabrina Corlette, a research professor at the Health Policy Institute at Georgetown University.

According to a group of researchers at Georgetown University, this type of quick fix is doomed to failure. Insurers face big barriers to entering state markets which can’t be overcome just because a state legislature hands out a free pass on a set of state regulations. But supporters aren’t the least bit discouraged by the industry’s initial cold shoulder. Heavily regulated states like New Jersey would welcome cheaper insurance products from out of state, they say, if they could be offered. And health plans would probably be more enthusiastic if the regulatory pathway was cleared to big new markets.

“I was surprised by the lack of interest in these laws on the part of the insurers that we spoke with,” says Sabrina Corlette, a research professor at the Health Policy Institute at Georgetown University who probed the effect of these new state laws. “I got into it with a little bias, thinking the insurance industry would be strong boosters of these types of laws.”

Far from cheering, Corlette says, insurers have been unenthusiastic about tackling far more serious market barriers to entry than mandates or individual sets of state regulations. She calls it the “chicken and egg” dilemma.

To crack a new state market, says Corlette, insurers need sizeable networks of providers. Without an opportunity to offer those providers a big membership group, it’s hard for newly-arrived insurers to negotiate good payment rates. The idea that a new health insurance product can come in and shave off a few percentage points compared to existing offerings because the company wouldn’t be burdened with mandates did not even tilt the scales.

“Mandates would often be included in a comprehensive package anyway,” says Corlette. “Things like cancer screening, diabetes care.”

Also, insurers weren’t exactly lusting after the markets in the six states that had either passed a law or carefully studied one.

“States that are more rural and lightly populated have more difficulty attracting insurers,” says Corlette. Insurers already busy in these states had little interest in importing new products from their operations out of state.

Compete with yourself?

“Insurance companies already selling in the state have established products,” says the researcher. “They’ve been marketing. They know their market, know what they want. Why cannibalize these products with mandate-light products?”

There’s also a built-in obstacle to these state-line laws, says Corlette. A mandate-heavy state like New Jersey or California — where solid majorities of lawmakers passed the mandates — isn’t likely to see the kind of heavyweight political support required to get one of these laws passed. And the states that do pass this type of statute typically don’t have the level of mandates that drove this debate to begin with.

The debate over allowing insurers to market plans across state lines free from regulatory mandates has tended to fall along partisan lines. Conservatives see this as an opportunity to allow more free market competition, drawing new insurers into a market and allowing them to sell products at a lower cost, eliminating stubborn pockets of the uninsured. Liberals see it as an industry flank attack, allowing insurers a free hand to strip out consumer protections and allowing them to come into a state and either bamboozle the uninformed with poor products that don’t afford real coverage or cherry-pick the healthiest residents.

Supporters of these initiatives, meanwhile, add that they aren’t surprised by their failure in the handful of states that have tried them.

“I think one of the reasons they have not taken off is that the states which truly need them haven’t passed them,” says Marianne Eterno, the interim executive director for the Council for Affordable Health Insurance, a longtime supporter of these initiatives.

At the top of her list of states that would benefit the most: “New Jersey, which has incredibly high insurance premiums and an overabundance of regulations that drive premiums up, reducing choices for citizens. A state like Georgia, they already have a pretty robust marketplace. There’s not as much need or impetus for companies to do things differently.”

“Maryland has more than 60 mandated benefits,” adds Eterno, offering another example. “They may be small individually, but together it makes insurance expensive.” Maryland, though, also tends to vote Democratic, which tends to eliminate debate.

What’s needed is a federal law allowing insurance companies to establish a product in one state and then sell it nationally, says Stephen Parente, a health care economist at the University of Minnesota.

“The states that are moving forward with this are not states of concern,” agrees Stephen Parente, a health care economist at the University of Minnesota. Parente and Roger Feldman joined a group of economists who asserted that a national program allowing the sale of health insurance across state lines could dramatically lower costs, spurring wider coverage. In their study, the economists projected that the cost of coverage could plunge 49 percent in New Jersey and 22 percent in New York once new insurers moved in.

But this isn’t the kind of program that’s likely to work piecemeal, he says, with individual states scattered around the country taking action.

To make this work, Parente says, you’d need a federal law allowing insurance companies to establish a product in a particular state and then sell it nationally. That way the least regulated state in a region, say Pennsylvania, New Hampshire, and Nebraska, could regulate insurance products sold to states in the larger region. Those states would provide regulatory oversight and the plans would be freed of more intense legislative controls. The plans could be offered without a tremendous amount of difficulty through online sites.

“The insurance trusts and troikas in the state need to be busted up,” says Parente. A federal law would bypass the insurance lobbyists and interests that control legislatures in states like New Jersey.

Parente shrugged off the network challenge.

“Which plans are we talking about? Large insurers like United, Cigna, Aetna, and WellPoint, that really are operating with self-insured employers in all 50 states? The thought that United couldn’t come in and operate in all 50 states is wrong,” says Parente. The company has negotiated some 500,000 provider contracts around the U.S., “which is almost universal.”

Party line

There’s no sign that the debate will wane soon. Corlette says she found initiatives on this topic in 17 states when she was doing her research. In 2010, Republicans in Congress proposed the interstate sale of health insurance in their “Pledge to America.” And with the Affordable Care Act now nearing the starting line for state exchanges, both sides are likely to dig in even deeper.

Reach Contributing Editor John Carroll at [email protected]