One Obamacare talking point you often hear from Republicans is that it inappropriately imposed a national, one-size-fits-all solution, wherein states should be allowed to develop policies on healthcare that best meet their residents’ needs and desires.
Another talking point you often hear is that health insurers operating in any state ought to be able to sell policies to residents of any other state.
This is called “interstate sale,” and it would mean that health insurance would be regulated by the state where it is sold, not necessarily the state where the insured person lives.
As Republicans fret over how to repeal and replace the Affordable Care Act amid President Donald Trump’s ascension to office, it would be possible for them to develop a policy approach that aligns with one of these principles — but not with both.
Interstate sale means no regulatory role for states
Historically, insurance regulation is a matter for state government — which is why many states have an elected office of Insurance Commissioner, and why property and casualty insurance generally cannot be sold across state lines.
If you allow interstate sale of health insurance, states will no longer have effective power to regulate health insurance. Insurers will relocate to whichever state has the most favourable regulatory climate for insurers and sell policies for the whole country from that state.
This would not necessarily be a terrible thing by itself. Roughly, this is how credit cards work now: Banks can issue credit cards from anywhere, so they do so from the states with the rules they like best.
You may have noticed that your credit card bills come from Delaware or South Dakota — this is why.
In practice, interstate issuance of credit cards means regulation is handled by the federal government. And in my opinion, it is generally handled adequately by the federal government.
The feds could take on a similar role with health insurance if they set their minds to it. This might be better especially for consumers in small states, which tend to have few health insurers selling individual policies.
Without regulatory power, states can’t develop their own solutions
The problem would come from allowing interstate sale while at the same time expecting states to develop their own approaches to making health insurance coverage adequate and affordable. One of the important tools states would need to meet this responsibility is insurance regulation.
States would need to set rules about how insurers can underwrite policies, who they must cover and at what price, what benefits they must cover, and similar matters. But if they set those rules when interstate sale is legal, insurers will be free to ignore the rules by selling from another state.
Last week, House Speaker Paul Ryan touted a list of Republican policies to free the health insurance market, interstate sale among them. He told CBS’ Charlie Rose:
“We want more choices. That’s why we want things like interstate shopping. Let insurance compete across state lines. We have — we have a lizard selling us car insurance on Geico. We have Flo selling us home and auto insurance. Why can’t we have a vibrant marketplace like that for health insurance?”
“The health market is much more shielded from competition,” Ryan’s spokesman Brendan Buck told me. “He was using that as an example of how other insurance products must do much more to compete for your business.”
It’s true that the individual health insurance market is, for a variety of reasons, less vibrant and competitive than the markets for auto and home insurance in most states.
But it’s somewhat odd to point to Flo and the Gecko as an argument for interstate sale, given that Progressive Insurance and Geico are vibrantly competing in 51 separate state-level markets, regulated by separate regulators, who sometimes impose stringent rules about what they may charge and what they must cover, especially in the case of auto insurance.
People want health insurance to be more than just insurance
The key difference between health insurance and other insurances, which makes health-insurance markets less fluid than other insurance markets, is not who regulates the plans. It’s that health insurance is more than just an insurance product.
Americans have come to expect that health insurance will cover some fraction of their routine and expected health care expenses. There is also strong public opposition to medical underwriting — the practice of charging people more, or denying them coverage altogether, if they are known to have a pre-existing condition.
Homeowner’s insurance has the equivalent of medical underwriting: If your house is at risk of hurricane damage, you’ll have to pay more to insure it. This makes it feasible (in most places) to have a fairly free and competitive market in homeowner’s insurance.
You could deregulate health insurance so that it is treated roughly like homeowner’s insurance, and if you did so you’d probably get a more competitive and vibrant, national market in health insurance — for healthy people.
Unfortunately, this approach would make insurance unaffordable for many people with preexisting conditions, unless their coverage was subsidized to a degree much greater than Republicans have historically been willing to fund through high-risk pools.
Doing so would cost hundreds of billions of dollars over a 10-year budget window. During the Obama administration, Republicans in Congress could not even agree to spend $5 billion on a high-risk pool pilot program intended as an alternative to Obamacare.
Republicans can’t have it both ways anymore
There have been two broadly contradictory messages from Republicans on Obamacare. One is that the program is too expensive because it requires insurance to be too generous, covering too many things for free or close to it. Under this critique, health insurance is not enough like a regular insurance product.
The other is that co-payments and deductibles are too high, making health care too unaffordable — which is to say, under this critique, health insurance is too much like a regular insurance product.
They can change public policy to respond to one of these critiques, but not both.
Republicans could further insurance-ize health insurance by pushing more Americans toward catastrophic plans that cover only high and unexpected health costs, while expecting people to pay for their own routine care, perhaps with money they deposit in health savings accounts.
But, as Republicans presumably know from running against the high co-payments and high deductibles associated with the Affordable Care Act, this would be unpopular.
Leaving sick people in the lurch when shopping for insurance would be unpopular, too.
Ultimately, whether health insurance is handled by states or the federal government, it’s going to need to have some characteristics we wouldn’t expect in other insurance markets, allowing for coverage of routine care and coverage for people who already know they’re sick — and that means we can’t expect buying it to be like buying from Geico.
This is an opinion column. The thoughts expressed are those of the author.
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