With the presidential debates fresh in everyone’s minds (unfortunately for most), the topic of solving the problem of high health insurance rates was discussed.

One solution in particular was thrown into the ring:

Repeal Obamacare and allow health insurance companies to sell insurance across state lines, thereby increasing competition and “the free market” will help to lower rates.

In most consumer markets, increasing competition is a great idea as a way to increase choice and lower prices, but health insurance does not fit into a typical consumer market.

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Why not?

Cutting to the quick, experts on the subject believe that removing the state line barrier and allowing insurance carriers to sell anywhere will have the opposite effect and, in fact, increase costs tremendously.

Some of the reasons?

  • Insurers would be incented to sell policies in states that allowed them to medically underwrite (using any medical/health history they want as criteria) and deny coverage to people with pre-existing conditions. The result? Anyone in those states with pre-existing conditions would be back to skyrocketing, high premium, low benefit insurance options.
  • Insurers would avoid states that had no medical underwriting (guarantee issue) and leave those states high and dry. No risk for the insurers, high prices and few choices for consumers.
  • The biggest hurdle? Insurers negotiate reimbursement rates with doctors and hospitals on behalf of their clients. If an insurer went into a new state with no enrollment they would have no leverage to negotiate good rates making it difficult to compete with insurers who are in the state with lots of clients.

Despite the claims that nationwide commercial health insurance competition would bring the choices that people are looking for, the reality is that for many reasons for insurers, providers, doctors and consumers, health insurance remains a local business.

More details on the state lines versus nationwide argument, see: Those Pesky Lines Around States (Source: JAMA Forum)

 

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Jeff is CEO of NFP Health, where he leads all operations for the region’s largest independent insurance exchange, HSAinsurance.com. NFP Health offers a comprehensive suite of health, dental and ancillary insurance products to individuals and small businesses in Massachusetts, Rhode Island and New Hampshire.

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