Bill Would Allow Consumers to Purchase Health Insurance Across State Lines

Published June 1, 2005

On May 12, U.S. Rep. John Shadegg (R-AZ) introduced the Health Care Choice Act of 2005, H.R. 2355, which would make it possible for consumers to purchase individual health insurance across state lines. The measure has more than 40 cosponsors. A companion bill was introduced in the Senate by Jim DeMint (R-SC).

H.R. 2355 is aimed at creating a national marketplace for individual health insurance, giving consumers more choices by requiring states to take a more “collaborative approach” to regulating insurance coverage.

The federal government can assert jurisdiction in this arena, the bill notes, because “individual health insurance coverage is increasingly offered through the Internet, other electronic means, and by mail, all of which are inherently part of interstate commerce.”

Forcing States to Cooperate

The bill allows a health insurer to designate one state whose laws will govern the individual insurance coverage it offers. That state becomes the insurer’s “primary” state. Insurers are permitted to designate a different primary state only when a policy comes up for renewal.

All other states in which the insurer chooses to market individual health insurance policies are considered “secondary” states for that insurer.

The laws of the primary state would apply to health insurance policies issued not only in that state, but also in the insurer’s secondary states. The insurer would be exempt from coverage regulation by secondary states but would continue to be subject to their administrative rules, such as requirements that the insurer register with the insurance commissioner, pay fees required of all insurers in the state, and submit to financial examinations by the insurance commissioner.

Escape from Over-Regulation

“Numerous and significant variations in State law [affect] the ability of insurers to offer, and individuals to obtain, affordable individual health insurance coverage,” Shadegg’s bill points out.

Eight states, for example–Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, New York, Vermont, and Washington–impose guaranteed issue and community rating regulations that have made individual insurance less available and more expensive than it otherwise would be. (See “How Eight States Destroyed Their Health Insurance Markets,” Health Care News.) A policy that costs $3,589 a year in heavily regulated New York would cost less than half that much–just $1,538–in less-regulated California, according to a September 2002 report by ehealthinsurance, an online health insurance brokerage.

Other states impose costly coverage mandates, requiring insurers to cover everything from fertility and impotence treatments to baldness treatments and hairpieces. Mandated benefit requirements vary widely from state to state. According to the Council for Affordable Health Insurance, Minnesota imposes the most mandates–62–while Idaho imposes the fewest–13.

“Special interests for health care providers often convince state representatives that mandating their particular service will add little to the cost of health insurance in the state,” noted Devon Herrick, senior fellow at the National Center for Policy Analysis. “When added together, these numerous mandated benefits and provider significantly increase the cost of coverage. Allowing consumers to purchase a policy across state lines would provide the incentive for politicians tack on fewer mandates in order to keep a state’s insurance industry competitive.”

Shadegg’s bill would give consumers in over-regulating states an opportunity to buy less-expensive insurance from carriers operating in less-regulated states. The measure essentially allows consumers to “escape” overly burdensome regulatory regimes without having to move to less-regulated states.

“Congressman Shadegg’s bill will create a truly nationwide competitive health insurance market,” noted Tarren Bragdon, director of health reform initiatives for the Maine Heritage Policy Center. “It will empower consumers with a multitude of health insurance options so they can make an educated choice of which affordable plan is best for them and their families.

“Due to Maine’s burdensome health insurance regulations–including guaranteed issue and community rating,” Bragdon continued, “those living in neighboring states can purchase similar individual health plans for 50 to 70 percent less than those sold in Maine. Mainers are used to driving to New Hampshire for sales tax-free shopping. With this change, they could pick up low-cost health insurance as well.”

“Beware, some of you state legislators,” said Merrill Matthews, Ph.D., director of the Council for Affordable Health Insurance. “The introduction of the Health Care Choice Act portends that your days of micromanaging health insurance, driving up premiums–and the number of uninsured–with costly mandates and guaranteed issue are near an end.

“Should this bill become law,” noted Matthews, “Americans will have access to affordable health insurance coverage despite many of your best efforts to deny them that opportunity.”

“We need the opportunity to shop in a national marketplace,” said John C. Goodman, president of the National Center for Policy Analysis. “If we can buy wine across state lines, why not buy health insurance as well?”

Diane Carol Bast ([email protected]) is vice president of The Heartland Institute and executive editor of Health Care News.

For more information …

The text of U.S. Rep. John Shadegg’s “Health Care Choice Act of 2005” is available through PolicyBot™. Point your Web browser to, click on the PolicyBot™ button, and search for document #17024.