Why can't Americans purchase health insurance across state lines?

What is the logic for not allowing purchase of health insurance across state lines? Who is responsible for this situation? And why did they do it?

I suspect that this is because health insurance has been historically regulated by states rather than the federal government and this was a convenient way of allocating jurisdiction among state insurance regulators.

Who's currently responsible for this situation? Politicians who are paid off. err. lobbied by insurance industry (since lack of cross-state selling impedes competition and therefore raises profits for insurance companies).

@user4012 that's not entirely accurate. I mean, profits are absolutely the issue, but selling across states isn't necessarily going to make things less profitable for the insurance companies. The biggest problem is that consumers have no way of knowing what they are purchasing. There's no practical way to compare plan costs (beyond the deductibles and OOP limits) the way the for-profit industry negotiates all prices privately.

@blip - There's already calculators that do that for you. People already compare costs because there's usually at least 2-3 plans to choose from, at least in work plans.

@user4012 they can only calculate your OOP limits. There's actually no way for you to know what something will cost between two plans--or even two doctors--as these are privately negotiated between the provider and the insurance companies. In other words, you can compare the costs of the plans but not the costs of what the plans cover.

3 Answers 3

It started in 1851 when states began regulating insurance:

The "logic" was basically deciding to regulate it as there was no consistent regulation prior. Once one state started it, the rest followed suit.

An insurance company can operate across state lines (for example, many large health care insurers sell plans in multiple states), but any policy they sell in a particular state currently has to adhere to that state's regulatory requirements. You could say insurance can be purchased across state lines but specific plans can not.

So, why can't one buy a plan for a separate state?

The regulatory answer is that they aren't regulated by the state you are in. That's the red-tape issue.

But there's a much larger issue and that is health care, as a whole, is heavily regulated, so there are divisions along state lines there as well. And how insurance plans work in the US is that every procedure is negotiated with every doctor, hospital, pharmacy, etc. They are incredibly complex financial negotiations.

The reality is that even offering more plans across state lines wouldn't necessarily 'fix' problems. It could improve things, but there's no guarantee.

The biggest obstacle at the moment to making insurance options more competitive and ultimately benefiting the consumer is the opaqueness of the options. There simply is no way for a US citizen on a private health care plan to actually know what they are getting prior to the procedures actually being performed and, in hindsight, billed to the particular plan.

This is factually correct, but doesn't address two issues: (1) why an individual can't purchase insurance from a plan in another state? E.g., I can go to a store in another state and buy cheese or wine (despite both being state-regulated). I can buy goods from NewEgg which is in California, as long as I pay sales tax. I can buy financial services from a NY based brokerage living in other states (e.g. Fidelity). What makes insurance so special? and (2) Why aren't there any - or at least, any successful - efforts to fix this.

@user4012 I'll try to address #1. AS for #2, there's debate as if it needs 'fixing'. It's not necessarily a problem. but I'll try and address that too (the answer is basically "because that's how the industry works"

Re: #2, the argument made (though it's a separate question if the argument is correct) is that not allowing cross-state insurance purchases drives up the prices for insurance consumers by lowering supply and drastically decreasing competition.

@user4012 yes, I understand the argument--and why it's appealing. It would make for an interesting separate question. The reality, though, is that people can't easily comparison shop plans as it is. Adding more isn't necessarily a benefit for the consumer given the opaqueness of actual costs. If you are at a grocery store, there's not a huge advantage having 15 peanut butter brands vs. 10, if nothing is priced in the first place anyways. ;)

The problem with the peanut butter analogy is that today I live in a state that says peanut butter cannot contain broken glass. The argument is that I should be able to buy peanut butter from West Dakota where they don't regulate the broken glass content. This would increase competition because the non-crunchy glass states cannot keep the standards they have set. Today they are free to sell across state lines, they just need to match the local requirements.

While there are federal health care laws that must be followed, many of the rules, regulations and laws regarding health care, itself, let alone health care financing differ from state to state:

1. Liability limitations ($ amounts)
2. Liability protections (what you can be sued for)
3. Standards of guilt/innocence/liability in court cases
4. Licensing requirements and restrictions
5. Treatments that are legal

Then you have insurance, which has it's own set of rules, regulations, licensing, requirements, restrictions, based on state laws.

For larger insurers, you CAN essentially cross state lines and buy from a larger insurance company, but they have separate, state-level entities to deal with the specifics of each state.

Allowing a singular entity to sell across state lines would essentially mean that the state with the least restrictions/protections/cost would get to overrule the states where they are doing business. If you say "No, they'd still have to follow the laws of the individual states," then you'd have a patchwork of state level operations, which is what exists now.

The "selling across state lines" argument is a phony one, that essentially is an attempt for companies to try and avoid state-level regulations. It's much cheaper if you only have to buy a handful of legislators and one governor in a single, small state (why do you think so many credit card bank operations are HQ'd just in Delaware or Nevada) to make "regulations" that allow a company to do whatever they want.

@LN6595 - Interest rates they are allowed to charge, so, regulation. The differences in state taxation is minuscule, and company after company after company has stated that state taxation does not have an impact on placement of locations. gradingstates.org/…. If you believe otherwise, please share some information links to bring me up to speed. forbes.com/sites/clairetsosie/2017/04/14/…

Regardless of state laws about state regulations, there is a problem that supporters of selling across state lines haven't thought about.

Insurance companies won't do it.

Because hospital systems won't cross state lines. And Insurance products are tied to the contracts they establish with the hospitals. So in order for this to work, politicians need to realize that they would have to free hospitals from state regulations as well and then force hospitals to negotiate with insurance companies that have no leverage in that area. Currently there is a rather bad miscommunication between the exaggeration and hype of the subject and insurance companies.

Aetna CEO recently called the concept outdated saying that if consumers where to buy a policy in another state, they would have to travel to that state for coverage due to the way product is tied to regional hospital networks. http://video.cnbc.com/gallery/?video=3000589179

It isn't to say that nation wide policies don't exist. They do. Companies that self-insure their employees typically have nation wide plans. The disadvantage of this is such companies often have to pay more for individual health expenses and they can require people to travel hours for some medical care. Walmart is an example of a company that frequently self-insures many of its employees. And for some surgeries a Walmart employee may have to travel several hours to find a covered surgical center. The upside to such plans is there is very little overhead administrative costs. Often self-insured companies come out ahead financially.