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.