House revives bill to allow interstate health insurance sales

Senate Democrats and President Obama oppose the legislation, but three states have adopted their own versions of the federal measure.

By Doug Trapp — Posted June 6, 2011

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The latest attempt by House Republicans to roll back the health system reform law would allow health insurance companies to sell policies across state lines while revoking coverage expansions and consumer health insurance protections in the law.

Proponents of the measure argue that some states' coverage requirements on health insurance plans are artificially inflating premiums and making insurance unaffordable for millions of people. This barrier could be lowered by allowing health plans registered in a state with fewer insurance mandates to sell plans to residents in states with more mandates.

For example, 12 states require health plans to cover acupuncture services, said Rep. Marsha Blackburn (R, Tenn.), lead sponsor of the interstate insurance measure, known as the Health Care Choice Act of 2011. Residents in those states who feel they don't need such coverage theoretically could find cheaper plans in states without the acupuncture mandate.

"This bill would give consumers the option of buying health insurance that meets their needs and is right for them -- even if that means buying a policy that is qualified in another state," Blackburn said during a May 25 House Energy and Commerce health subcommittee hearing on the bill. The measure, like nearly all of the GOP health reform repeal-and-replace measures, is unlikely to be adopted by the Democratic-controlled Senate or signed by President Obama. The House Energy and Commerce Committee adopted a similar bill in 2005.

Allowing the interstate sale of health insurance, depending on how it is implemented, could help between 4.4 million and 8.2 million people gain coverage, according to hearing testimony by Stephen Parente, PhD, MPH, a professor of health finance at the University of Minnesota.

Democrats argued that allowing health plans to be sold across state borders while repealing the health reform law's ban on preexisting health condition exclusions, among others, would hurt at least as many Americans as it would help. Health insurance companies would rush to sign up the healthiest, least-costly people regardless of their state of residence. This would leave older, sicker Americans paying more for health insurance -- if they are able to obtain any coverage at all, the lawmakers said.

"This bill basically asks someone with diabetes or breast cancer to pay more or go without health insurance so that someone else can pay less," said Rep. Henry Waxman (D, Calif.), the highest-ranking Democrat on the House Energy and Commerce Committee. Waxman also questioned why GOP members, who argue for states' rights, support a measure that would reduce states' power.

The Health Care Choice Act would repeal some popular benefit mandates, Waxman said. Forty-five states require adopted children to be offered the same coverage as any other family members. A similar number of states require coverage for disabled children, as well as emergency care, colorectal cancer screenings and other benefits.

The arguments encapsulate the fundamental philosophical divide between Democrats and Republicans on health care. While GOP members put faith in the free market and consumer choice to hold health plans accountable, Democrats argue that state and federal regulators are needed to require health plans to be transparent and to prevent them from manipulating the health insurance market.

Debate over the potential impact

States have been the primary regulators of insurance since 1945, the year Congress adopted the McCarran-Ferguson Act. The law gives states the authority to regulate insurance unless specifically preempted by federal law. Also, health plans must be licensed in a state to sell health policies to its residents.

States typically regulate health plans according to a few key standards. States can set age ratings, or the maximum range of premiums health plans can charge based on a person's age. A person between 55 and 64 years old typically has five times the health care spending of a person in his 20s, said Ed Haislmaier, a senior research fellow in health policy for the Heritage Foundation, a conservative think tank based in Washington, D.C. States also regulate health plans' ability to charge based on where people live and which benefits health plans must cover.

Blackburn's bill would allow out-of-state health plans to bypass these regulations in other states. Health plans still would be required to maintain financial reserves in case of insolvency and to pay state taxes. Applications also would include a disclaimer noting that many of the state's regulations might not apply to a particular plan.

Republican and Democratic rhetoric on the bill may be overheated, Haislmaier said. The legislation would apply only to the roughly 10% of Americans with individual health insurance.

"The benefits are not going to be big and are not going to be universal, and they are going to vary," Haislmaier said, adding that the same point applies for the drawbacks.

The law mainly would help young and healthy people in states with many health insurance mandates, such as New Jersey and New York, Haislmaier said. But he said premiums in high-mandate states would be reduced by only 15% at most, because health plans would face some of the same costs faced by local plans. For example, they still would pay physicians and hospitals local rates for their services. Health plans also could face barriers to entering new markets, such as the need to establish adequate networks of doctors, hospitals and other health professionals.

Many states already offer low-cost individual health plans. The problem is that these plans offer limited coverage that some people may not think is worth the premium cost, said Linda Blumberg, PhD, senior fellow in the Urban Institute's health policy center.

Also, health insurance does not function like a free market, Blumberg said. In nongroup health insurance, "the way you get the biggest decrease in premiums is by dividing the risk. Yes, you have made coverage more affordable for the healthy, but at a direct cost for the people who are not healthy."

At least three states have adopted bills allowing interstate health insurance sales. A bill enacted by Georgia in May would open up the state to any health plans that meet certain basic standards. But similar laws adopted in Wyoming in 2010 and by Maine in May begin by limiting cross-border health insurance sales to companies in certain nearby states.

The Maine bill was controversial and was opposed by state consumer groups and the Maine Medical Assn., said MMA Executive Vice President Gordon Smith. The potential impact of interstate health insurance sales in Maine is unclear, Smith said. But the medical association opposed it, because it could allow health insurers to sell policies only to the healthiest residents and could place additional barriers on physicians who lodge grievances against health plans.

Many of the state bills are based on a model written by the American Legislative Exchange Council, a group of state legislators who support free-market solutions. In 2010, lawmakers in 18 states introduced the model bill, while this year lawmakers in at least 15 states did so.

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Interstate offerings

Three states passed laws in 2010 and 2011 allowing health insurers based in other states to sell their residents individual market plans. Governors of Arizona and Oklahoma vetoed similar legislation.

Wyoming: House Bill 128, signed by then Gov. Dave Freudenthal in 2010, directs the insurance commissioner to form a multistate health insurance consortium with bordering states. An insurer registered in one member state automatically could sell policies in other member states, provided it follows certain rules and offers certain consumer protections.

Georgia: House Bill 47, signed by Gov. Nathan Deal on May 13, allows out-of-state health plans to be sold in Georgia if they meet the National Assn. of Insurance Commissioners' actuarial standards and give disclaimers warning residents that the plans are not subject to Georgia's insurance regulations.

Maine: Legislative Document 1333, signed by Gov. Paul LePage on May 17, allows insurers registered in Connecticut, Massachusetts, New Hampshire or Rhode Island to sell policies in Maine, provided they comply with certain Maine laws and give disclaimers warning residents that the plans are not subject to Maine's insurance regulations.

Source: American Legislative Exchange Council

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