Health-care reform: Shopping across state lines
Dec 17, 2009 12:16 PM
Can buying an out-of state plan save you money? Both the Senate and House health-care reform bills have provisions that might allow individual health plans licensed in one state to sell policies in other states. The idea is that consumers would benefit through competition, potentially leading to more choice and lower premiums. But some worry that any discounts could come at the cost of consumer protections, and 31 House Democrats sent a letter this week to the leaders of the House and Senate to asking them to revise the provisions.
“The interstate compact provisions…as currently written, will lead to a race to the bottom in insurance regulation and severely threaten the important and often lifesaving protections the residents of our states enjoy,” wrote the lawmakers. If a state entered into a “compact” with another that has lesser protections, an insurer based in a more lenient state could sell policies that don’t meet the stricter rules, as illustrated by this language on page 220 of the Senate bill:
“1 or more qualified health plans could be offered in the individual markets in all such States but, except as provided in subparagraph (B), only be subject to the laws and regulations of the State in which the plan was written or issued.”
Of course, the proposals in the House and Senate bills do create strong federal standards that insurers would have to abide by. (They won’t be able to write junk policies willy-nilly, for instance, or reject or charge people more based on their health history.) And state legislatures would be able to choose whether to enter a compact at all. But health insurance has for many years been regulated by states, and some have enacted regulations that go beyond the proposed federal standards. They’ll be able to keep them.
“Practically speaking, insurers will domicile their plans in states with less stringent regulations and market to the populations in more protective states…just like nationally chartered banks.” Banks are an apt example. Until the late 1970’s, state usury laws limited the amount of interest a bank could charge on a credit card. But after the Supreme Court ruled that banks only had to adhere to the laws of the state they’re based in, states like South Dakota and Delaware relaxed their interest limits to draw in banks. Now it’s not unusual to see a credit card with an interest rate in the high 20-percent range, or even higher.
The proposals in the House and Senate bills do have some protections for states. Some are strong: States aren’t forced into compacts and the legislature has to approve agreements with any out-of-state plan. Some are weak: Insurers must include a disclosure notifying “consumers that the policy may not be subject to all the laws and regulations of the State in which the purchaser resides,” according to page 221 of the Senate bill.
The bills also create other kinds of national plans that may circumvent state regulations. A plan to have the Office of Personnel Management, which manages health insurance for federal employees, negotiate and oversee a national health care option is still being talked about on the Hill, but details are sketchy. We’ll be looking at these national plans more closely in coming days.
—Kevin McCarthy, associate editor
The lawmakers say a variety of regulations in 17 states could be endangered by the interstate insurance policies. Among these, they point to rules in California that guarantee patients access to life-saving procedures and medicines such as cancer screenings, insulin for diabetes, and coverage for newborn babies.
They also say that many states, including California, Maine, New Jersey, New York, Vermont and Massachusetts have “age-rating” provisions that are more protective than the national standard would be. (An age rating is the variation insurers are allowed to charge based on the age of the policyholder. For example, in Maine insurers can charge older people 1.5 times the amount they can charge their young enrollees.) The Senate bill would create a federal standard of 3 to 1, and the House bill 2 to 1.“Practically speaking, insurers will domicile their plans in states with less stringent regulations and market to the populations in more protective states…just like nationally chartered banks.” Banks are an apt example. Until the late 1970’s, state usury laws limited the amount of interest a bank could charge on a credit card. But after the Supreme Court ruled that banks only had to adhere to the laws of the state they’re based in, states like South Dakota and Delaware relaxed their interest limits to draw in banks. Now it’s not unusual to see a credit card with an interest rate in the high 20-percent range, or even higher.
The proposals in the House and Senate bills do have some protections for states. Some are strong: States aren’t forced into compacts and the legislature has to approve agreements with any out-of-state plan. Some are weak: Insurers must include a disclosure notifying “consumers that the policy may not be subject to all the laws and regulations of the State in which the purchaser resides,” according to page 221 of the Senate bill.
The bills also create other kinds of national plans that may circumvent state regulations. A plan to have the Office of Personnel Management, which manages health insurance for federal employees, negotiate and oversee a national health care option is still being talked about on the Hill, but details are sketchy. We’ll be looking at these national plans more closely in coming days.
—Kevin McCarthy, associate editor
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