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Donald Trump: Health Insurance Across State Lines

On his website, Donald Trump offers a seven-point plan alternative to overhaul the Affordable Care Act. Along with his call to “completely repeal Obamacare,” the Donald calls for the modification of an “existing law that inhibits the sale of health insurance across state lines.” Mr. Trump believes that any health insurer should be able to sell any health insurance plan in any state—as long as the plans comply with the regulations of the state. In the video below, the Donald explains why a modification of the state-lines rule was in order.

Rubio was not convinced. Many other high ranking insurance professionals, economists, and journalists do not subscribed to the Donald’s healthcare tenets. Here are a few perspectives from skeptics of Donald Trump’s ‘State Lines’ plan.

Thomas P. Miller—“Trump Probably Can’t See beyond His Self-Insured Tower.”

This point comes from the article “The ‘blurred lines’ of Trump’s health plan (He knows you want it)” from a leading ACA critic. Large businesses with thousands of employees can purchase large health insurance plans where the insurance is readily accepted in many states. Donald Trump employs 22,450 people across multiple states; thus, his company needs to take any steps possible to make sure that his employs have insurance that works in multiple locations across the country. Most likely, the Trump Organization chooses to self-insure its employees.

If he self-insures, then Donald Trump’s health insurance buying process does not match that of small businesses and employees. Small businesses and individuals must buy health insurance compliant with state regulations as mandated by the federal law ERISA. Donald Trump can buy group insurance from any bidder in any state, and though his rhetoric is hard to decipher, Donald Trump might be trying to extend the same privilege to small businesses and individuals. If this is the case, and residents of the 50 states begin to buy health insurance from other carriers and other states, then there might be barriers in using said health insurance plans.

John R. Graham—Provider network is the largest determinant of premium prices.

In his blog post, “Health insurance across state lines” featured on thehill.com, Graham makes a great point. If a New Yorker could buy a health policy licensed in Utah that was cheaper than a policy licensed in New York, then the New Yorker should be able to buy the policy licensed in Utah. The obvious benefit to buying a policy licensed in Utah would be that the New Yorker would pay less in health insurance costs every year; however, are the lower costs worth it?

This all depends. If the Utah insurance company has a local provider network in place in New York, then the policy would be worth the lower premium costs. It is highly likely that the Utah insurance company has a provider network set up in Utah and not New York. If this is the case, then the New Yorker would have to fly to Utah to receive treatment in the event of sickness or injury. This would not be practical.

Forbes contributor Avik Roy asserts that “building a provider network takes time and effort.” The process of building provider networks requires large health insurers to engage in ongoing negotiations with providers, hospitals and pharmacies. In addition, it is a difficult task to manage all of the claims and payments of providers in established networks.

United Healthcare operates a health insurance network in Chattanooga, Tennessee that contracts with 470 primary care physicians. Hundreds more specialists, such as cardiologists and dermatologists, are also included in this network. Health insurance companies charge premiums based on their costs to maintain networks. Health plans are inextricably tied to the large networks that the insurance companies establish and maintain.

Jim Purcell—“Consumer protection would be highly at risk.”

Health insurance is regulated at the state level, and large health insurance corporations generally build health insurance networks that are state-wide in area. Large health insurance brands, such as Blue Cross Blue Shield and United Healthcare, sell policies in every state. The large insurance carriers, however, sell health insurance plans through different state corporations. If one is a Tennessee resident with a Blue Cross health plan, he would buy health insurance from Blue Cross Blue Shield of Tennessee. A resident of Virginia would buy a Blue Cross Blue Shield plan through Anthem.

Health insurers would be able to operate in a completely different fashion under Donald Trump’s plan. In his article, it seems that Mr. Purcell assumes that large health insurers will now be able to incorporate in a single state, and the large health insurer will sell uniform health policies that comply with the regulations of all states. A large part of having state regulations in place is to protect consumers, and a health insurer’s compliance to state regulation is a costly endeavor.

Purcell presents the scenario where a health insurer incorporates in the state extending the most favorable regulation climate to the health insurance company. A state looking to create jobs would court a large health insurer to incorporate within its borders in an attempt to create jobs and bolster tax revenue. This state would entice the insurer with less stringent consumer protection rules.

If Donald Trump wants to allow the sale of health insurance across state lines, consumers might suffer less protection due to less stringent compliance rules, but the insurance companies would save. The Donald says that he wants insurance companies to comply with state regulation which protects the best interest of consumers. An insurance company can choose to be compliant with all the rules of the different states, and in doing so, it will protect the consumers. This is an expensive endeavor—the health insurer won’t save.  As Mr. Purcell puts it, Mr. Trump “cannot have it both ways.”

What Donald Trump Needs to Know

With any major overhaul of any major system, there are always unintended consequences that arise. Constantly, there is news that deductibles are going up under the Affordable Care Act. Yes, the ACA has its fair share of problems, but repealing and replacing Barack Obama’s signature piece of legislation is not the answer. Repealing the act would cause 20 million people to lose their health insurance. Donald Trump’s promise of a replacement is not a much better alternative to the Affordable Care Act.

In self-insuring his employees, Donald Trump can buy health insurance from multiple carriers across multiple states. Unfortunately, small businesses and individuals cannot buy health insurance in this fashion. The Donald wants to extend individuals the privilege of buying health insurance across state lines in an event to stimulate competition from health insurance companies while driving the premium prices down. This might work, but health insurers have to sign up first. The State of Georgia invited out-of-state carriers to sell health insurance within its borders in 2010. Participation was dismal.

In addition, health insurance prices reflect an insurance company’s costs in administering a provider network—state lines are more of a coincidence than a barrier to competition. Finally, if we have the opportunity to buy a health plan complying with the state requirements of Utah, will we still be able to use the plan in Georgia? This and other consumer protection concerns must be addressed.

Philip Strang is a Certified Agent/Broker with American Exchange. Contact him by telephone at 1-888-995-1674 or by email at p.strang@americanexchange.com.

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