Selling Health Insurance Across State Lines: What It Means for Employers

Premium increases and a reduction in the number of issuers selling plans in the Affordable Care Act (ACA) marketplaces over the past several years have prompted some stakeholders to propose allowing the sale of health insurance across state lines as a way to increase marketplace competition and drive down premiums. But would allowing insurers to sell insurance across state lines really accomplish these objectives?

Are There Benefits to Allowing the Sale of Health Insurance Across State Lines?

Those supporting insurers’ ability to sell insurance across state lines argue that allowing this would afford consumers the opportunity to select from health insurance plans offered throughout the country, encouraging insurers to improve their benefit offerings and reduce their costs to be more competitive. Proponents also argue that allowing the sale of insurance across state lines would encourage insurers to enter markets where there currently is little or no competition.

However, six states — Maine, Rhode Island, Kentucky, Georgia, Wyoming and Oklahoma — already allow the sale of health insurance across state lines, yet not a single health insurance company has taken advantage of the opportunity presented in these states. Why aren’t health insurers already selling across state lines?

A major reason health insurers don’t sell across state lines today is that selling across state lines doesn’t improve the affordability of health insurance. A key driver of health insurance premiums is the local cost of health care. Premiums of cross-border health plans would continue to reflect these local costs, so individuals in an area with higher health care prices would not experience lower health insurance premiums.

Health insurers would also face a significant barrier to selling across state lines in that they would have to develop networks of health care providers and try to negotiate favorable contracts with networks of hospitals and physicians in the states where they plan to sell. Because an out-of-state insurer wouldn’t have a local presence and recognition in the state where they plan to sell, it’s likely that the out-of-state insurer would have difficulty negotiating effectively with providers.

Will Association Health Plans Promote Selling Health Insurance Across State Lines?

Association health plans (AHPs) are group health plans sponsored by an association or group of small employers. Any employer, including small businesses and certain self-employed individuals (for example working owners), may join an association if the employers are in the same industry, regardless of location, and that association can sponsor a group health plan. In this way, groups of small businesses and working owners in the same industry but located in different states can join an association that purchases a health insurance plan for all its members.

Some associations with nationwide scope have expressed interest in sponsoring an AHP. A number of states, however, including California, New York and Connecticut, concerned about out-of-state issuers offering plans to their residents, have announced rules that would make it difficult for nationwide AHPs to operate.

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This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.

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