President Donald Trump and Republican lawmakers have only a few weeks left to extend the Affordable Care Act’s federal subsidies or propose other reform measures that would address skyrocketing health care costs. Trump was expected to announce details of his solution last Monday. Multiple outlets — citing anonymous sources — reported that Trump planned to extend the subsidies but delayed his announcement after other politicians pushed back.
As Trump and politicians continue to pivot, Straight Arrow News is revisiting one oft-proposed solution: allowing Americans to buy insurance across state lines.
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Why can’t Americans buy health insurance across state lines?
The U.S. Constitution’s Commerce Clause expressly encouraged cross-state commerce and even prohibited states from enacting laws hindering interstate trade. Yet, today, Americans can only buy insurance policies from their home state.
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Total health spending reached almost $5 trillion in 2022, nearly 20% of gross domestic product. That means that $1 out of every $5 spent in the U.S. goes toward health care.
In 1945, Congress passed the McCarran–Ferguson Act, which deemed that the insurance industry did not fall under commerce, exempting it from most federal regulation. Primary authority over health insurance was therefore left to each state. That meant every state was responsible for overseeing health insurance, including licensing insurers, setting coverage requirements and running consumer protection processes.
Over the next 50 years, health insurance regulation diverged. The Affordable Care Act— which passed in 2010 — aimed to remedy some of the inconsistency by providing more uniform regulations. It mandated that insurance companies provide insurance to anyone who applied and paid for it, as well as certain basic services such as preventative and maternity care. It also barred excluding people with existing medical conditions, and included a provision that allowed insurers to sell policies across state lines if states joined health care choice compacts.
Six states passed local laws allowing such pacts, but no states joined them. Consequently, Americans today cannot buy health insurance plans across state lines. Insurance companies can sell plans in multiple states as long as they are licensed in each state they do business.
What impact would cross-state insurance sales have on cost and quality?
Few quantitative studies have modeled the impacts of interstate insurance reform on health spending or quality and access to care. Much of this policy debate rests on hypotheticals and untested assumptions. Views on interstate health insurance sales typically break along partisan lines, with Republicans backing the idea and Democrats opposing it.
Conservative politicians have encouraged cross-state sale of health insurance, believing it would spark competition, enhance consumer choice and lower prices.
If Americans could buy insurance from anywhere, they would be more likely to pick a plan best suited to their individual or family’s needs, several medical organizations and conservative think tanks pointed out. States differ in what benefits insurers must cover, such as fertility care, addiction treatment or acupuncture, for instance. Therefore, some consumers pay for services they don’t need or want while others may be unable to access benefits they do want.
Advocates also argue that interstate sales would inject competition into an industry in which typically only a handful of options are available. By broadening consumer options and enabling them to shop for lower-cost plans, premiums could fall.
Some argue that freedom of choice is a key American ideal. Others contend that in our current system, the health insurance industry is a for-profit business and no other company is restricted from selling products or services across state lines. One exception to this is if a business provides a service or product, such as marijuana, that is illegal in the state.
Critics have noted this approach might prompt deregulation and would set off a “race to the bottom.” Insurance companies would relocate to states with the least restrictive rules, enabling a national industry to be regulated solely by the most lax state. Consequently, companies could sell policies offering lower monthly premiums at the trade-off of quality care.
Health insurance works by pooling risk. Everyone in a plan, whether healthy or sick, pays into a shared fund through monthly premiums. Insurance companies bank on the fact that only a small fraction of people will need large amounts of care in a given year. By spreading those high, unpredictable costs across a large group, insurance makes medical expenses more predictable and affordable for each individual.
But, if consumers could buy insurance from a larger, national catalog of plans, healthier consumers might leave more regulated markets to purchase bare bones plans. As sicker or older Americans remain in smaller pools, insurance premiums would likely increase for patients who need the most care.
State regulators have pointed out unresolved questions about which state — the one where the consumer lives or the state in which the insurer is based — would have regulatory authority and which would be responsible for consumer protection.
