Selling insurance across state lines no fix for lowering healthcare costs, experts say
President Donald Trump touts the competitive advantage of allowing insurers to do business across state lines, but payers might not bite.
In campaign promises and in his speech before the Joint Session of Congress in late February, President Trump promised to relax the regulations blocking insurers from selling their plans across state lines, a move aimed at increasing competition and decreasing prices.
But experts in the field say the plan will do neither, unless restrictions are so relaxed that insurers are able to cherry-pick healthy patients, undermining insurance coverage for everybody else.
"I think what the administration is trying to achieve is creating more competition. (But) everyone in the business knew it wouldn't spur competition," said Greg Borca, cofounder and owner of Skygen USA in Milwaukee, which provides technology and benefit management services to insurers.
The biggest obstacle to an insurer looking to expand territory is that most established markets already have a dominant payer, Borca said.
Linda Blumberg, a senior fellow on health policy at the Urban Institute, agreed it's very difficult for insurers to enter into a market where other insurers have been able to negotiate good rates.
Hospitals offer deeper discounts to insurers that already have a large customer base and provider network in their area, according to Borca. New payers won't have that advantage.
[Also: Providers to bear cost burden in Republican healthcare plan, experts say]
"Providers and insurers have this long-standing relationship," Borca said. "As a result of that, hospital A offers tremendous discounts, and here comes Cigna or Blue Cross across state lines to sell. Why is system A going to give up discounts and a $2 billion relationship? They're not going to. Discounts within the hospital system are where the competitive balance is."
This status quo has worked to the financial benefit of both providers and payers, he said.
Twenty years ago, insurance companies negotiated in a heavy- handed way for rates, he said. So hospitals started to consolidate and vertically integrate to improve their negotiating power.
"The net result is an anti-competitive environment," Borca said.
The reality is that there are more new auto manufacturers in the United States than new commercial insurance plans, Borca said.
Then there's this: Selling across state lines is already allowed -- a provision of the Affordable Care Act then went into effect in 2016 -- and no one really noticed because insurers didn't line up to take advantage.
Under the ACA, two or more states can band together to offer consumers in one state health coverage that's not subject to the rules of their home state, as long as those states agree.
States would have to explicitly pass legislation to allow insurers to enter into these agreements. Only three states have approved those laws -- Kentucky, Georgia and Maine -- but none have made deals, according to the National Conference of State Legislatures.
No states or insurers have signaled interest because of the ACA standard to cover essential health benefits and to offer all people coverage, Blumberg said. The ACA law applies to the non-group insurance market.
The ACA replacement plan released by Republicans on March 6 keeps the provision for essential health benefits, according to healthcare consultant Paul Keckley. However, Keckley believes this provision could be removed before the final version of the bill is passed.
If the GOP plan does away with this regulation, insurers could begin charging consumers based on their health status, according to Blumberg.
An insurer from one state could come into another state that's highly regulated, such as Massachusetts, and undermine the pricing of an established health plan by cherry-picking beneficiaries.
"If you pulled the healthier young adults out of the pool in Massachusetts, the average cost of the pool would go up because you would have sicker people. Insurers in Massachusetts would find it hard to sell and maintain comprehensive coverage."
The premiums would be less expensive for consumers in a narrow network because insurers wouldn't expect them to use a lot of coverage.
"This is not good for a BCBS or Kaiser, whose approach is broader enrollment," Blumberg said. "In terms of choice, it could lead to limited choice. It's a very dangerous policy to put into place."
Borca believes these narrow networks are not so much of a risk because they've never appealed to consumers.
"Most people want choice," Borca said.
For providers, the biggest issue in allowing sales across state lines is that it would lead to narrower policies, higher cost sharing and lower covered benefits, according to both experts interviewed. When this becomes the case, providers are harmed because they end up picking up more uncompensated care.
What would really open up insurance competition is price transparency from providers and the requirement that hospitals and health systems offer the same discount levels to all payers, said Borca.
If hospitals established a fee schedule like any other business, there would be an explosion of new health plans, he said.
"The huge barrier to entry is price certainty," he said. "You would see insurance offerings all over the country."
Price transparency should include the rates, and also the discounts given in insurer contracts.
For instance, he said, an uninsured patient could have a $40,000 bill for the same surgery as an insured patient whose surgery has a price of $3,600.
"Billed charges are so different than what the ultimate fee discount is to an insurance company," Borca said. "It's a mind-boggling difference. If you could get down to true transparency … you'd see an explosion of insurance companies. At that point, the payer that can deliver services most efficiently will gain the advantage, and consumers will reap the benefits."
Twitter: @SusanJMorse
