The Georgia legislature drew headlines in 2011 when it became the first state to legally authorize citizens to purchase health insurance across state lines. But the attempt to allow interstate purchasing of insurance, long a principle of market-based reform proposals, has yet to pay off: not one insurer is currently offering policies from out of state.
“Nobody has even asked to be approved to sell across state lines,” Georgia Insurance Commissioner Ralph Hudgens said at a recent press appearance. “We’re dumbfounded. We are absolutely dumbfounded.”
No Silver Bullet
John Graham, a senior fellow at the Pacific Research Institute, says the motivation for interstate purchasing is a good one, but it’s no silver bullet for rising premium costs.
“If you look around the country, you’ll see in a state like Utah or Idaho it costs much less to insure a family or individual than it does in Massachusetts or New York,” Graham said. “So politicians say, ‘Suppose my constituents could buy health insurance from Utah or Idaho; it would reduce their costs by a significant amount.’ That’s what they’re trying to get out there. But it’s not that simple.”
Graham said Georgia shouldn’t be surprised insurers haven’t taken up their offer yet.
“The insurer in Idaho would have to negotiate a network of providers in Atlanta, and therefore would be facing the same cost base as the insurer who’s already there locally,” Graham said.
Other Cost Drivers
He notes an out-of-state insurer would be in a bad position to negotiate with local providers to offer coverage at competitive premiums compared to those with a larger local base of operations.
“Many Republicans have convinced themselves that the primary drivers of differences in premiums are state mandates. There’s been a real increase in these mandates, such as legislatures requiring an insurance policy to cover a certain type of treatment or expensive new therapies,” Graham said. “These do add some to the cost of medical care. But the primary driver of the cost of medical care is the cost base of the provider in your community. If you’re in Boston or San Francisco, the hospitals are very expensive, and the fees the doctors demand will be higher, too, because of the cost of living. Everything’s more expensive in New York City than it is in Utah.”
Graham notes insurers in these higher-cost communities pay higher-cost medical claims and have to negotiate within a costlier provider network which often consists of a monopoly or duopoly of hospitals with enormous negotiating power. These costs are passed on to consumers in the form of higher premiums. Interstate purchasing doesn’t allow them to escape that.
“I’ve always been a little skeptical of this approach,” Graham said. “It’s a nice sound bite, but when you look at what a health insurer has to do to actually take advantage of the provision, it becomes more difficult.