Buying Insurance Across State Lines

[11811]

Proposals are being floated to allow for the purchase of insurance across state lines. Has anyone yet compared this to allowing credit cards to be sold across state lines? What would prevent all the insurers from locating to Delaware and jacking up rates?

[robby]

Where are you located? What type of insurance are you talking about?

I haven't purchased car or homeowner's insurance from a company that was located in my state of residence in years. (My insurance company is licensed to offer insurance in my state, however.) I deal with my insurer exclusively by phone or online.

When I have a car insurance claim, they send out a local claim adjuster who has a mobile office in his car.

(This is a large Fortune 500 company, BTW.)

[11811]

Originally Posted by robby

Where are you located? What type of insurance are you talking about?

Sorry, I meant health care. I'm in Pennsylvania. My healthcare is through my employer, so I'm ignorant of how others obtain it who do not obtain it through an employer.

[RealityChuck]

In answer to the OP: nothing.

Most states regulate what coverage has to be included if someone wants to sell health care in that state. (Insurance companies can sell across state lines even now, BTW, but they must meet each individual state's regulation requirements.)

The fear is that health insurance companies will drop coverage mandated by your state. It's not so much raising rates (though that, too, is regulated), as providing minimal coverage.

Assuming the states can't regulate insurance means that in order to increase profits, insurance companies will drop certain coverages in order to provide the lowest possible rate. The lower the rate, the easier they will be able to sell their plans to companies (who decide what insurance plans they have for their employees).

[11811]

Originally Posted by RealityChuck

In answer to the OP: nothing.

<snip>The fear is that health insurance companies will drop coverage mandated by your state. It's not so much raising rates (though that, too, is regulated), as providing minimal coverage.<snip>

So while not identical to the change in credit cards, the concern is that greater interstate sales of healthcare will lead to bigger profits for a corporation and fewer benefits for consumers? Thank you. I had an intuition that this would be bad, but I was a little off on why.

[Harriet the Spry]

Well, there is a theory that it would be good. I will say up front that I don't really buy it, but I will try to do it some justice.

For example, some states may have essentially only one or two companies writing individual health insurance policies. Having more competition at least gives you the ability to take your business elsewhere. However, once insurance companies know that you've made even one significant claim, they would probably just as soon you take your business elsewhere. Still, economic theory is pretty clear that having even the threat of being able to take your business elsewhere increases competition and market efficiency.

Also, some states mandate coverage for things you personally are unlikely to need. For example, a state may mandate coverage for pregnancy, driving up the rates for all women's health insurance. A healthy woman who is willing to self-insure against the risk of pregnancy (such as by taking birth control or abstaining from sex or having money saved up to pay for her own labor & delivery) can probably save a few bucks on health insurance by getting insurance in a state where pregnancy isn't required to be covered. Ditto for some other things like fertility treatment, etc.

However, I put little faith in buying insurance across state lines as any kind of a miracle cure. Insurance companies are highly motivated not to insure sick people. Being able to shop across state lines won't do much for that. Making insurance slightly more affordable for healthy young people isn't the problem we need to solve.

[Wesley Clark]

Its a horrible idea IMO, because that is exactly what would happen. The companies would all move to states that have the weakest consumer protections, then set up shop. The state that makes it easiest to deny claims, rescind coverage and avoid paying for care would get all the business. On top of that, if they insurance companies couldn't find that state, they'd just bribe a state to pass laws by offering to start businesses there. Credit card companies did that in South Dakota. They told SD's government if they passed laws friendly to the banking industry (and harmful to consumers) they'd set up shop there. So they did.

Its a horrible idea unless you have strong federal regulations and consumer protections to avoid this. If not, they'd just go to some economically disadvantaged state with a very pro-corporate legislature (probably somewhere in the deep south) and tell them if they passed very strong legislation allowing them to rescind and deny coverage, they'd all set up shop there.

So naturally John Boehner wrote off federal consumer regulations as 'whining' or something like that a few weeks ago.