Bob, I think
cross-state buying is an idea whose time has come.
You make good
points in your post today on this subject. Yes, the underlying problem is the
cost of medical care; yes, the idea of cross-state purchase of insurance does
nothing about this underlying cost; and yes, discounts that Alabama insurers
have wouldn’t apply at Georgia providers.
But - - the fact
remains that current law distorts the insurance markets. It does so by (1) allowing states to
set their own, independent benefit mandates and (2) prohibiting citizens from
shopping in other states for policies that are less expensive because they have
fewer mandates.
You and I can shop
in other states for thousands of products – even fertilizer. Why not insurance?
Allowing interstate
insurance sales would afford more consumer choice and reduce insurance premiums
by allowing people to avoid mandates that they don’t want, and don’t want to
pay for.
Let’s assume
cross-state purchasing were legal; here are my thoughts on how it might work in
Georgia and Alabama.
Alabama has fewer
benefit mandates than Georgia so the pure actuarial cost of Georgia policies (i.e.,
exclusive of demographics, utilization, and discounts) is greater than Alabama
policies. The new market here
will be among Georgians who wish to buy the less expensive, Alabama-level
benefits. Alabamans can
already buy these policies.
Alabama-licensed
and Georgia-licensed insurers would be allowed to sell in both states. They could sell any policy they choose,
so long as the policy benefits are approved by some state – California, Rhode
Island, Idaho, Alabama, Georgia - any state.
Now, how will
Georgia-licensed insurers respond?
If they choose not to sell Alabama-approved policies, they will lose
some of their market. That’s because Georgians could shop in Alabama.
Georgia-licensed insurers might decide to let that happen. However, I think it’s more likely that
the Georgia-licensed insurers would gear up to sell policies with benefits approved
by Alabama. In fact, I think they are eager to do so already.
How would these
policies be priced? Not a problem.
The requirement is simple – price out a specific set of benefits (e.g.,
Alabama-level) for a population in a specific area (e.g., a Georgia
county). This is the kind of thing actuaries
and underwriters do every day and twice before breakfast. Insurers already
licensed in both states could gear up quickly for this.
How would the
states regulate the new policies? All
policies for Georgia residents would still be issued in Georgia, so the situs remains
well-defined. The Georgia insurance department would keep its regulatory duties
intact, except that it would have the additional duty to allow people to buy
policies that include benefits approved in another state. This would mean additional oversight
duties. Yeah, more work for them.
Would the cost of
Alabama-benefit policies for Georgians be greater than for Alabamans? Maybe—but that does not matter. What matters is whether those policies
are less expensive for Georgians than the existing Georgia-approved
policies. And they will be,
because they contain lesser benefits. Georgians therefore have a new and
attractive option - to pay lower premiums than they do now, provided they are
willing to choose the lesser Alabama-approved benefits.
Cross-state availability
could mean the days of captive populations on which any state legislature can impose
insurance mandates without limit, without regard to consumer cost, and
without consumer recourse, would be over.
Would that be so terrible?
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