During last week’s debate, GOP presidential nominee Mitt Romney once again pledged to repeal Obamacare, but he was light on details about what he would replace it with, other than to suggest that his administration would encourage states to come up with reform plans of their own.
“What we did in Massachusetts is a model for the nation, state by state,” he said. “And I said that at that time. The federal government taking over health care for the entire nation and whisking aside the 10th Amendment, which gives states the rights for these kinds of things, is not the course for America to have a stronger, more vibrant economy.”
But considering that the Massachusetts law was the model for Obamacare, what, other than replicating what Massachusetts did, are the states to do?
High on the list of recommendations in Romney’s health care platform is an idea frequently touted as a silver bullet by conservatives: allow insurance companies to sell policies across state lines. Doing so, they say, will increase competition and, consequently, bring down the cost of coverage.
The problem is that no one had done a study to determine definitively whether the across-state-lines idea would work — until now. And the conclusion of that study, conducted by the Georgetown University Health Policy Institute, is that allowing coverage to be purchased across state lines is much more of a blank than a bullet.
The study also finds that no new federal law is even needed to allow insurance companies to sell policies across state lines.
“With or without changes to federal law, states already have full authority to decide whether or not to allow sales across state lines and, if so, under what circumstances,” the study noted.
Of course, you wouldn’t know that from listening to Romney and other politicians who seem to believe than an act of Congress is needed. It isn’t. State legislatures can make it happen whenever they want, but, so far, only six have decided to try it. Georgia, Maine and Wyoming have enacted legislation in recent years to allow out-of-state insurers to sell policies within their borders. Lawmakers in Kentucky, Rhode Island and Washington passed bills requiring their insurance departments to research the idea and determine interest from out-of-state insurers.
The lawmakers who championed the legislation expected their states would be inundated with applications from insurers far and wide eager to sell their policies. But it hasn’t happened. In fact, not a single insurance company has expressed the slightest interest in doing business in any of those six states.
The problem is that the think tanks and politicians haven’t taken the time to understand how health care is delivered in this country — which is locally — and how the insurance industry has evolved.
Only those of us of a certain age can remember the days before managed care when indemnity health insurance policies were the norm. If you had an indemnity policy, you could go to any doctor or hospital and get your claims paid. No more. Just about every insurance policy these days is network-based, meaning your choice of providers is limited. That’s because insurers these days negotiate reimbursement rates with doctors and hospitals in any given market. The more “members” a health plan has, the more clout it has at the negotiating table with providers.
Insurers that have a long-established presence in a market typically have relatively large memberships and can demand hefty discounts from providers. That enables them to price their policies lower than smaller and less-established insurers. And that, in turn, allows them to attract more customers.
Thus, the barriers to enter a given market have become exceedingly high. Even big national insurers face this problem. Cigna, where I used to work, really wanted to have a large share of the market in Philadelphia, where it was based, but has never been able to compete effectively against Aetna and Blue Cross, the dominant players in Philly.
As the Georgetown researchers wrote, this is no small challenge. “To compete with domestic insurers, out-of-state insurers must build a network of local providers and negotiate competitive reimbursement rates. Out-of-state insurers thus face a chicken-and-egg dilemma: they must build a sufficient membership to negotiate competitive rates with providers, but, to garner that membership, they must show customers they have an adequate network of providers and charge a premium that is comparable to their competitors.”
The researchers also pointed out numerous other problems that contribute to the lack of interest in across-state-line selling. Among them: differences of opinion among insurance departments over who would regulate out-of-state insurers to assure their solvency and the adequacy of their policies.
So the next time you hear a candidate tell you how great it will be when insurers can sell their products across state lines, be aware that they already can. They just don’t have the slightest interest in doing so.
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