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The Truth About State Lines And Insurance Costs

Oct 10, 2016

 

A recent article at Forbes highlighted a study by the Urban Institute’s health policy center that examines whether allowing health insurance to be sold across state lines would really lower costs. Read on to find out whether this campaign promise has any merit.

 

Healthcare And The 2016 Election

Healthcare has been a major issue in the tempestuous 2016 election. While one candidate is fiercely critical of the Affordable Care Act (also known as ‘Obamacare’), the other is more measured in their criticism. But both candidates agree that there are significant problems with this country’s health insurance system as it currently stands.

 

One thing that basically all sides agree on is the fact that premiums are simply too high for the middle class to comfortably absorb. Yes, the lower economic class is now more insured than ever before, but those subsidies can’t last forever, and they certainly can’t come at the expense of the middle class, who is bearing the lion’s share of the burden for health insurance costs right now. As private insurers exit the marketplace and incentive programs expire, average citizens are watching their insurance costs balloon to astronomical numbers. It’s no wonder that so many voters are currently quite heated in their rhetoric about this issue, and that the presidential candidates have followed suit.

 

Insurers Running The Marketplace?

An idea that has been floated before and most recently championed by Donald Trump is to open the health insurance marketplace “across state lines” to supposedly improve competition and create more transparency in the health insurance market. But many prominent figures, including the director of the Georgetown University Health Policy Institute, believe that premiums are high not because of regulatory reasons, but rather financial ones.

 

The fundamental problem still remains — creating a network and filling it with enough members to make the risk make sense from a logistical and financial standpoint is a complication that has stymied the good intentions of lawmakers and policy authors alike. Therefore, based on the current prevailing wisdom and research, it seems irresponsible to make any claims about premiums getting cheaper simply because of regulatory restrictions are lifted across state lines.

 

Dr. Momjian’s Take

Each week, Urgent 9 founder Dr. Manuel Momjian will personally weigh in on the topics covered by the blog.

 

momjianHealth insurance companies in many areas are working without competition, and can be considered true monopolies. Of course, competition is always welcome to drive down the cost of care. It can also stimulate innovations in new and better health delivery models. But, we have learned from the state exchanges that creating a new insurance product is a risky venture.

 

A good example is the insurance exchange co-ops — the only reason many of these co-ops came into existence was because of the risk corridor program, which guaranteed that they would be paid back for any losses within the first 3 years. The risk corridor could not even save these companies in the end, and over half of them are bankrupt.

 

The question of whether opening up state lines will make that much of a difference is a good one. It might make a difference in the long run — such as in the next 20 years — but do not expect any major tectonic shifts in insurance prices from these changes alone in the short term. Insurance companies are not going to make huge risky investments in new unknown markets quickly. Furthermore, I would be hesitant to ask large health insurance companies to come and save our healthcare system. We have tried that once before… and it got us into this mess.

 

— Dr. Momjian