Health Insurance Articles
How Allowing Out Of State Health Insurance Companies Can Change Insurance Rates
2011-04-29
The 1945 federal McCarran-Ferguson Act permits American states to regulate health plans within their jurisdiction as they deem fit. This rule does not explicitly prohibit out of state health insurance companies from participating in the health insurance market of a particular state. However, this law gives complete discretion to the state in question. Due to the variation in rules and regulations between states, there was no scope for health insurance companies to target multiple states without difficulties.
Since 2008, steps have been taken to create a structure or compact that allows out of state health insurance companies to step in and offer plans without difficulty. The Patient Protection and Affordable Care Act proposes the formation of compacts that will bring out of state health insurance companies into the equation.
Enabling more health insurance companies to offer their services to citizens of a state will have a significant impact on insurance rates. Competition always leads to price wars, and this will help individuals get coverage at better rates. More policies, plans, mandates and wider choices will allow market forces to determine price. This is definitely a positive aspect for the average individual struggling to pay health coverage premiums. However, there is a fear that unrestricted competition may lead to a race to the bottom where companies offer deals at unsustainable rates to generate higher volumes. There is also a possibility of insurer-hospital tie-ups that may affect the real coverage enjoyed by the insured.
Another possibility is that out of state health insurance providers may cause the market to move to a high-price model. Entry of new companies with different practices, terms and conditions, and customer bases may cause insurers and insured to adopt a wait-and-see approach. The cost of dealing through compacts and the regulatory issues to be complied with may cause insurance premiums to go up, especially in the beginning.
On the whole, the extent of impact will depend on how enthusiastically the government, existing insurance companies and out of state health insurance companies adapt to the compacts. In a positive setup, companies will compete by offering better rates and better services to gain market share. In the event of a negative approach, insurers may end up litigating with the government on charges of collusion and price rigging. They may also end up competing with each other by resorting to unfair practices, causing problems for the average insurance customer. Historical precedents suggest that moving from a closed market to a liberal and open market does not always lead to an immediate reduction in prices. However, sustainable effort and real shifts in the approach will cause rates to come down in the long run.
