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Saturday, March 4, 2017

JAMA Forum: Those Pesky Lines Around States

Larry Levitt
JAMA Forum Blog
Originally posted October 19, 2016

Here is an excerpt:

Allowing insurers to then sell plans across state lines would actually worsen access to coverage for people with preexisting conditions, since insurers would have a strong incentive to set up shop in states with minimal regulation, undermining the ability of other states to enact stricter rules.

Let’s say Delaware wanted to attract health insurance jobs to its state with industry-friendly regulations—for example, no required benefits (such as preventive services or maternity care) and no restrictions on medical underwriting (meaning people with preexisting conditions could be denied coverage). Insurers operating out of Delaware could offer cheaper health insurance by cherry-picking healthy enrollees from other states. If New York tried to require insurers to expand access to people with preexisting conditions or mandate specific benefits, its carriers would get stuck with disproportionately sick people.

Delaware is not a random example here. This is exactly what happened in the credit card industry after the Supreme Court ruled in 1978 that credit card companies could follow interest rate rules in the states where they operate, not the state where the cardholder lives. Two states—Delaware and South Dakota—moved quickly to deregulate interest rates, and banks followed suit by moving their credit card operations to those states. By 1997 Delaware had 43% of the nation’s credit card volume.

The blog post is here.