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Selling across state lines will be a great deal: for insurance companies

“Well, for one example, Maryland requires insurers to pay for one wig for cancer patients during active chemotherapy course of treatment, most states don’t have a wig requirement, so allowing them to compete on a level field could be the end of the wig benefit.” Anderson continued, “Another example, Pennsylvania Act 62 requires private insurers to pay the first $36,000 in autism support claims every policy year, while another state might not have an autism mandate at all. They would both be able to sell plans side-by-side.”

The health cost to insure Jane or John Doe can be lower in some markets simply because doctors charge less in those parts, or because accidents happen less, or because John and Jane are on average healthier than people in other states. But another way costs can be reduced is with higher copays, or by lowballing providers, or by reducing or eliminating coverage altogether anyway they can, some of which the ACA did away with (preexisting conditions, lifetimes caps, etc.). Purely as an illustration, what if in some states insurance companies have to cover prenatal care while in others they don’t? Or maybe in one place Rx copays are limited to $50 by the local state insurance board, whereas in the state next door they’re a cool $100.

Anderson went on to point how complicated and potentially destabilizing it could get. He explained that a state using what’s called a pure community rating — meaning everyone pays the same price — could face major disruption, what some might even call a death spiral, if a company from outside the state could sell into that market and not be subject to that state requirement. He said in that scenario, “an outside company could sell cheaper coverage to 22 year olds, avoid older consumers, and thus undermine the existing private health insurance market for everyone in the state.”  

Healthcare is complicated, the details are wonky, but the consequences potentially affect all of us. An argument can be made that insurance companies thrive fine in stable markets. That standardizing benefit packages allows them to plan long term, and that they’d just as soon avoid engaging in a vicious zero sum game. The insurance industry is, by and large, small “c” conservative in nature.

But companies are more than capable of competing in a dog eat dog market if need be. And while selling across state lines might have some benefits as a result of that competition, they look to be few and far between for most consumers. Per usual it will probably be the youngest, healthiest ones who would reap the benefit. For the rest of us it will probably result in more money out of pocket and all kinds of hidden restrictions, and since the young and healthy today are guaranteed to get older tomorrow, that means sooner or later, everyone will feel those many hidden pinches. Which could work out great for some insurance companies. The ones that would wage a race to the bottom, where year over year earnings growth at the expense of consumers is the grand prize waiting at the free market finish line.

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