Microeconomic mismatch undermines concept of interstate health insurance market for non-integrated plan issuers
Creating an interstate market for individual health insurance is a component of President-elect Donald J. Trump’s healthcare policy. “To maximize choice and create a dynamic market for health insurance, the Administration will work with Congress to enable people to purchase insurance across state lines,” according to the Trump administration’s transition website.
The concept’s not new. It’s been around for decades as a reform element favored by conservative health policy wonks. It’s even baked into the Patient Protection and Affordable Care Act. Section 1333 of the law provides a mechanism for health insurers and plans to pool risk and sell across state lines via “health care choice compacts” starting this year. The provision allows two or more states to enter into an agreement under which health plans could be offered in state individual markets but subject to regulation by the state in which the plan was written or issued. The Affordable Care Act even provides for interstate health benefit exchanges. Section 1311(f) provides for “Regional or Other Interstate Exchanges” operating in more than one state with federal government approval.
On its face, enabling the marketing of health insurance across state lines appears appealing. After all, insurance is all about large numbers — and the bigger the better. More people in multiple states covered in health plans translates to enhanced spread of risk and potentially operating economies of scale. It’s a particularly appealing reform as individual health plan issuers worry about adverse selection, particularly in less populous states and those with poorer population health status. With health plan issuers able to offer plans in multiple states, the buy side of the market also benefits with more competition and consumer choice, proponents contend.
But undermining the concept is a microeconomic mismatch. Health coverage is far more portable than provider networks, which are geographically fixed by metropolitan areas and the brick and mortar physician offices, clinics and hospitals within them. Provider charges are not uniform, varying considerably from one metro area to another, even within a given state. Health plan issuers negotiate locally with providers because nearly all health care is provided locally and not across state lines except for those living near state borders.
An interstate model currently only favors integrated health plans such as California-based Kaiser Permanente and Molina Healthcare, which each operate health care facilities in a half dozen states and have fared better in the state health benefit marketplace environment than traditional non-integrated health plans.
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