Can health insurance companies compete across state lines?

[Mr Spinkles]

Conservatives are fond of claiming "the federal government has made it illegal for someone to purchase health insurance across state lines." (Joe Stocks) So please answer the following questions:

(1) Which federal law makes this illegal?

(2) Why do all the major companies offer plans in almost every state, if it is a felony for them to do so? Here is proof that in most states you can buy plans from all the major providers (I posted the following information in another thread ):

• A list of the Blue Cross Blue Shield plans you can buy in what looks like all 50 states, plus American possessions: Plan Finder
• Aetna offers health plans in what appears to be every state: Aetna Student Health
• Click on any state to find the United health insurance plan that is right for you: Medical Insurance and Individual Health Insurance | GoldenRule.com
• Buy insurance from Humana in 21 states: http://www.humana-one.com/?kc=100501...zEzCjCZBFw5zTw

These were the first few companies I checked.

(3) If competition across county lines tends to lead to one insurance company monopolizing the entire state, why wouldn't competition across state lines lead to a monopoly of the entire nation?

(4) The Right has been very vocal about this. If it is a myth, what does that say about the credibility of leaders on the Right and the gullibility of everyone else on the Right?

 

[Mister_T]

I'm still wondering how what the OP has outlined, and tort reform are going to stop health insurance companies from canceling policies because of "pre-existing" conditions and other nonsense. Still haven't heard an answer to that one.

 

[Wandered Off]

(1) Which federal law makes this illegal?

I think that it's not a federal law but rather state laws. Each state has specific regulations for health insurance, and policies from states with different regulations don't qualify. For example, you saw that Aetna offers plans in every state, but you cannot currently purchase an Aetna plan from another state because its regulations may differ. You are limited to the one from your state.

One bill being debated to make it legal to purchase across state lines involves having the company designate a 'primary state' whose laws would apply.

 

[SoyLeche]

Ask your question here and you will get answers from people who know what they are talking about on this issue.

I don't really know much about health insurance. I could answer questions about life insurance, but I'm not all that versed in the different regulations there either.

 

[Mr Spinkles]

I think that it's not a federal law but rather state laws. Each state has specific regulations for health insurance, and policies from states with different regulations don't qualify. For example, you saw that Aetna offers plans in every state, but you cannot currently purchase an Aetna plan from another state because its regulations may differ. You are limited to the one from your state.

One bill being debated to make it legal to purchase across state lines involves having the company designate a 'primary state' whose laws would apply.

Of course, if you buy a product or service in a state it must conform with state law. That's true of pretty much any product or service, no? It doesn't mean companies are "banned from competing".

It seems to me the "conservative" talking-point on this issue could not be more incoherent.

 

[Wandered Off]

Of course, if you buy a product or service in a state it must conform with state law. That's true of pretty much any product or service, no? It doesn't mean companies are "banned from competing".

It seems to me the "conservative" talking-point on this issue could not be more incoherent.

Hmmm... That seems like splitting hairs to me. Consumers are banned from being able to purchase products across state lines, so companies are effectively banned from offering cross-state products.

Sure, the company can come up with a plan for my state, but "competing across state lines" implies, to me anyway, the same product.

Yes, just about any product has to conform with state law, but you will find a LOT more variation among state laws regarding health insurance than you would for, say, mobile internet service.

 

[Mr Spinkles]

Hmmm... That seems like splitting hairs to me. Consumers are banned from being able to purchase products across state lines, so companies are effectively banned from offering cross-state products.

Sure, the company can come up with a plan for my state, but "competing across state lines" implies, to me anyway, the same product.

Yes, just about any product has to conform with state law, but you will find a LOT more variation among state laws regarding health insurance than you would for, say, mobile internet service.

No, "competing across state lines" implies different companies. They could be selling the exact same product but one company has better customer service, or is more efficient so has lower prices, etc. We don't say, gosh, car-makers have to offer products which conform to the regulatory laws of each country, therefore GM and Toyota aren't competing internationally.

The issue is that state insurance markets are sometimes dominated by one company that has almost a monopoly. I'm not denying this is true.

The explanation for why this is true that is offered by the Right, is that there is no competition, that is, consumers in a given state can only choose one company. Another company would offer more competitive prices for the same product, if only consumers could choose between competing companies. We need less government interference so competition will drive down premiums, etc.

The first problem is it's not true, there is competition.

The second problem is that it makes no sense. Within states, companies compete freely. There's no change of health insurance regulation when you go from one county to the next. Therefore, by the above logic, there shouldn't be a state-wide monopoly. But there is.

Shouldn't we expect a state and its counties to be a small-scale experiment of a nation and its states? Why would we expect free competition among states to be different from free competition among counties? I suspect that the inhomogeneous state regulations are part of the reason we have virtual health insurance monopolies at the state level instead of at the national level, which is what we could very well have if there were no state regulations.

Let me propose the following: the free-market evolves naturally into a virtual monopoly in many industries. We know this. In fact it takes oversight and intervention to prevent the formation of cartels and to break up companies when they get "too big to fail". Let me suggest that perhaps this is especially true in an industry like health insurance, which can only work when you accumulate a large pool of shared risk. Also, the "customers" in this industry are almost all large employers and state governments. (It didn't have to be that way, you can purchase privately if you want to, but the practical realities work out so that it's much more cost-effective to have big pools of shared risk.) So of course there are going to be 10,000 - employee and state-government-sized "monopolies" just as an electric company has household or neighborhood-sized "monopolies", even while competing to grab more households or neighborhoods. Companies compete at the state level since the regulations occur at that level.

In other words, the nature of health insurance makes it more effective when we are all in it

 

[Wandered Off]

No, "competing across state lines" implies different companies.

Competition is by product, and product in this industry does not cross state lines. Different companies competing in the same state offering products unique to that state are not competing across state lines on those products. They may compete directly in other states (different products), but from the perspective of Joe Blow in Maine, the fact that Besafe Insurance and ACME Insurance compete head-to-head in, say, Ohio is of no consequence. That competition has zero immediate relevance to consumers in Maine because it's not crossing state lines.

Yes, saying "companies can't compete across state lines" does not present the whole picture, but it is far from incoherent. Maybe a more accurate presentation of the argument would be to allow companies to offer competing products across state lines.

I completely agree with your assessment that the insurance industry, because of the nature of risk pools, has a natural tendency toward monopoly. For me, this is one factor that would support a nationalized health insurance plan, though the impacts to existing private companies would be massive.

 

[Tiapan]

I thought americans retreated to Canada in droves to avoid the absurd American health debacle. Perhaps Canada should charge an entrance fee before US citizens can get their free medical care.

Cheers

 

[Mr Spinkles]

Competition is by product, and product in this industry does not cross state lines.

You're saying there are no health insurance plans which are compatible with the regulatory laws of more than one state? Really?

Different companies competing in the same state offering products unique to that state are not competing across state lines on those products. They may compete directly in other states (different products), but from the perspective of Joe Blow in Maine, the fact that Besafe Insurance and ACME Insurance compete head-to-head in, say, Ohio is of no consequence. That competition has zero immediate relevance to consumers in Maine because it's not crossing state lines.

Yes, saying "companies can't compete across state lines" does not present the whole picture, but it is far from incoherent. Maybe a more accurate presentation of the argument would be to allow companies to offer competing products across state lines.

Well we can parse words but clearly when the Right says there is no competition, they mean competition between companies, which is supposed to increase efficiency, lower profits, offer better customer service, etc. A single company with a monopoly could have several different "competing" products but that's not the kind of competition that drives down prices (and profits).

I completely agree with your assessment that the insurance industry, because of the nature of risk pools, has a natural tendency toward monopoly. For me, this is one factor that would support a nationalized health insurance plan, though the impacts to existing private companies would be massive.

Agreed.

 

[enchanted_one1975]

The way I understand it is that they must be licensed to operate in the state that the insured person(s) resides or where the insured property is located.

 

[Alexx]

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