To buy or not to buy health insurance across state lines

German health care
A doctor examines a patient.
Photo Illustration by Andreas Rentz/Getty Images

Supporters of overhauling the nation's health care system are looking to next week's White House summit for signs the reform bill still has life. President Obama called the bipartisan meeting next Thursday to hear Republicans' ideas for reforming health care.

One idea the GOP has suggested is to allow people to buy insurance across state lines. It's an idea Gov. Tim Pawlenty echoed in his State of the State address last week.

States have regulated insurance since the early 1800s. Even when a Supreme Court decision in 1944 cracked open the door to potential federal regulation, Congress passed a law the following year that affirmed it was in the public's interest that states continue to regulate and tax insurance.

States still regulate companies that insure their individual residents and small groups. So, a company that sells health insurance to individuals in Minnesota must get a state license and follow Minnesota's consumer protection laws.

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But for the past several years, national and state politicians have argued that state regulation has led to less choice and higher prices for consumers, because a few companies dominate the market.

Here's what Gov. Tim Pawlenty said about the subject last week.

"Three health plans control almost all of the health care market in Minnesota. We have little real choice in selecting our health insurance," said Pawlenty. "We live in a world where we can buy almost anything, from anywhere, anytime, on the Internet. Why not health insurance?"

Health insurance card
Some Republican leaders are backing a proposal to allow consumers to buy health insurance from companies located in other states. They say it would help reduce health care costs. Right now that practice is illegal.
MPR Photo/Melanie Sommer

Those three plans in Minnesota are: Blue Cross Blue Shield of Minnesota, Medica and HealthPartners. They comprise about 80 percent of the state's small group and individual market. Other insurers serve the remaining 20 percent.

Republicans like Pawlenty argue that allowing more companies to enter the market would increase competition and lower premiums. Republican presidential nominee, Arizona Sen. John McCain touted the idea during his 2008 campaign.

The proposal is contained in the health care reform bills, and it's also an idea that President Obama has supported. The disagreement comes over exactly how it should work.

Democrats prefer a highly regulated "health insurance exchange," a marketplace where consumers who don't have insurance through their employers could comparison-shop for policies. It would be a move towards universal coverage, which Republicans oppose.

The reform bills also included a provision that would allow states to make insurance agreements among themselves.

"We can buy almost anything, from anywhere, anytime, on the Internet. Why not health insurance?"

The plans some Republicans propose would simply allow residents of one state to buy insurance from companies in another state. For example, Minnesota could allow its residents to buy insurance from Texas companies, which are governed by Texas law.

"When you start to relieve out-of-state companies from the same obligations in terms of service and consumer protections that Minnesota plans are obliged to comply with, that's just not fair," said Julie Brunner of the Minnesota Council of Health Plans.

Brunner said Minnesota has stronger consumer protection laws than a lot of other states, and nearly 70 mandates by which Minnesota's Legislature has required them to abide. Her concern is that consumers would flock to states with fewer mandates and lower premiums, and hurt Minnesota's insurers.

"Minnesota's plans are homegrown. These are Minnesota companies. They employ over 16,000 Minnesotans," said Brunner. "This is a viable, strong industry. And in order to keep it that way, to protect the consumers that they're in business to do, you have to have a level playing field."

But Stephen Parente, a health economist at the University of Minnesota's Carlson School of Management, doubts that the change would cause many Minnesotans to buy insurance out of state.

Parente, who helped write McCain's health care plan, says saving money on premiums would depend on where a person lives. He says even with Minnesota's mandates, it's still not as regulated as other states.

Parente says given the choice, only 2 percent of Minnesotans would cross state lines to buy insurance, because they wouldn't save that much on premiums.

"The price points might be 5 or 10 percent less at most, probably more like 2 or 3 percent," said Parente. "So it's just not enough to get somebody to think about a policy across state lines."

Parente found that in states like New Jersey, 48 percent of those who buy individual or small group insurance would benefit from buying insurance in other states.