Selling across state lines (again)

Earlier this week, the Center for Medicare and Medicaid Services (CMS) sent out a request for information on how it should think about implementing Section 1333 regulations of the Affordable Care Act (ACA). Section 1333 allows for voluntary interstate compacts where a plan approved in one state would be approved for all member states of that compact. This was supposed to be launch in 2016 but the regulations have never been written.

There are three different proposed ways a single insurer can sell across state lines.

  • Interstate compact where participation is an opt-in
  • Open the gate and invite anyone to sell
  • Race to the bottom credit card regulation style

Maine and Georgia, among other states, have elected to open up their gates and invite any approved insurer into their state.  As of this week, no out of state insurer has elected to sell a non-locally approved product in the individual market.  The Race to the Bottom was the AHCA.  Interstate compacts are Congressionally authorized and approved agreement among several states.  There are different flavors of compacts and a health insurance compact may not necessarily be a 1333 agreement.

I am not too worried about Section 1333 from a race to the bottom perspective as they are voluntary and limited.  Massachusetts could theoretically approach Rhode Island for a combined market and Rhode Island could theoretically agree.  They would have to hammer out regulatory differences but there would be a shared understanding that they don’t want Texas or Oklahoma standards in their market.  Oklahoma and Texas could also talk and form a compact based on an understanding that they don’t want Massachusetts standards in their market.  It is based on a commonality of interest and approach.

I think that if two or more states were to enter a 1333 compact, the states would be fairly similar in approach and expectations so there would be minimum bottom dropping concerns.

I don’t think that selling across state lines will do much if we assume that there is not a race to the bottom in standards.  It does have some value.  Many state based individual market risk pools are small.  I have 2018 Healthcare.gov enrollment data open for another piece right now; 16 states had less than 100,000 initial effectuated buyers on-Exchange, 9 had less than 50,000 effectuated on-Exchange buyers, and 4 had less than 25,000 effectuated on-Exchange buyers.  Small risk pools means high idiosyncratic risk which has to be covered by either reinsurance policies (which can be expensive if bought through a third party) or higher premiums.

There is value in merging small risk pools.  I could see the logic of North Dakota, South Dakota and Wyoming (three of the four sub 25,000 states) cooperating in order to minimize catastrophic claim risk.  That is valuable and it would reduce premiums by a couple of bucks per member per month.  It won’t solve the underlying structural cost drivers of care, but it would shave off a point or two in costs.

I can also see the value of an interstate compact between West Virginia, Ohio and Pennsylvania that applies only to the Northern Panhandle.  Insurers in Ohio and Pennsylvania already have the hospitals in Wheeling and Weirton (near Balloon-Juice world headquarters) in network because that stretch of the state is a long jog wide at most.  A Pennsylvania insurer (Highmark) and an Ohio insurer (Care Source) already sell in West Virginia so a compact could reduce administrative costs by a few dimes per member per month.  Other Pennsylvania and Ohio insurers could theoretically be interested in selling in the West Virginia Northern Panhandle if there were lower barriers to entry regarding licensing.

As long as the interstate compacts are voluntary, opt-in agreements, this is an edge smoother.  It is not a game changer.

 

 






9 replies
  1. 1
    Gin & Tonic says:

    The slow but steady erosion of McCarran-Ferguson?

  2. 2

    @Gin & Tonic: Not if states are voluntarily entering (and exiting) these agreements

  3. 3
    Yutsano says:

    Let’s be honest. Selling across state lines was always about race to the bottom. Forcing the country to adopt the standards of Mississippi or some other low coverage state. The Republicans as I recall hounded to get something like this into ACA (and still all voted against it) but it didn’t turn into the poison pill they expected. But unless it’s some wonk policy maker, selling across state lines always makes me think credit card regulations. Or lack thereof.

  4. 4
    JaySinWA says:

    @David Anderson: Doesn’t risk smoothing fail if states can leave easily? If they can drop a small state which discovers an expensive patient, why wouldn’t they? And that would probably be a barrier to entry for a state that already had a screwy risk pool, wouldn’t it? Surely there needs to be incentives to form and friction to end the relationship to avoid cherry picking.

  5. 5
    Kelly says:

    @Yutsano:

    Selling across state lines was always about race to the bottom.

    Yes indeedy.
    Perhaps there there could be some value in markets that overlap state borders such as Portland+Vancouver.

  6. 6
    BretH says:

    I’m sure all our country’s problems would be solved if we could only sell torts across state lines.

  7. 7
    Another Scott says:

    Gaba’s take:

    In fact, guess what?

    Five states – Georgia, Kentucky, Maine, Rhode Island and Wyoming – already have enacted interstate compact statutes, according to the National Conference of State Legislatures.

    Note that the article above by Kimberly Leonard is from 2016…and in fact the compact provision has been part of the ACA since it was signed into law in 2010.

    OK, what else? Well, another slight bump in the BASL road is that even with five states enacting these compacts, not a single insurance carrier has expressed any interest in utilizing them, with very good reason: A Michigan resident enrolling in a healthcare policy sold out of Alabama isn’t going to find it particularly useful unless they plan on making a 15-hour drive every time they have to visit the doctor or pick up a prescription.

    […]

    UPDATE: Over at Balloon Juice, Dave Anderson points out that there are a few circumstances in which selling insurance across state lines make sense…but that this is very dependent on everyone involved showing good faith in how it’s structured:

    […]

    Fair points all around. In addition, my “15 hour drive” example above wouldn’t apply in the case of two small states located next to each other, like Rhode Island and Connecticut (it’s only a 90-minute drive from Hartford to Providence, for instance).

    However, as Anderson also notes, the key is that the arrangement has to be voluntarily agreed to on the part of all of the states involved…which is exactly what the ACA already allows for. And again, in over 5 years there hasn’t been a single sign of interest from any carriers in the six states which have signed on to such a compact.

    Cheers,
    Scott.

  8. 8
    Mnemosyne says:

    Another group of states that might do better with an interstate compact would be the Western states of NM, CO, AZ, and NV that have relatively high costs of living for relatively low populations.

    But the wingnuts running AZ would probably cause a race to the bottom in the name of “freedumb!” 😒

  9. 9
    Kent says:

    @Kelly:

    Yes indeedy.
    Perhaps there there could be some value in markets that overlap state borders such as Portland+Vancouver.

    Well, I actually live in the Vancouver area. All the big HMOs and hospital groups here already operate across state lines. Kaiser Northwest is based in Portland but has a half-dozen clinics in the Vancouver area. But Kaiser’s two main regional hospitals are on the Portland side. Your Kaiser card doesn’t stop working when you cross the Columbia.

    Same for all the other big hospital groups in Portland. One big hosptial in Vancouver (Legacy-Salmon Creek) is part of a Portland-based chain.
    The other big Vancouver Hosptial (Peace Health) is the flagship for a larger west coast chain. The big clinical and hospital groups have no problem operating across state lines and they just operate under each individual state’s regulations. All the hospital groups in Portland like Legacy and Providence have clinics in Vancouver. Kaiser is the only big HMO in the region but the big PPOs like Aetna and Blue Cross have no problem operating in both states. It’s really not that difficult.

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