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Insurance Without Borders: Will Buying Health Plans Across State Lines Help?

With health care legislation on perpetual pause in Congress, Republicans are proposing some new ideas for getting the deal done. From hybrid health insurance exchanges to mandates requiring everyone to be covered, the debate has shifted to what is likely to close the debate and get a bill on the President’s desk: allowing Americans to buy health coverage across state lines.

Currently, people can buy health policies only from health insurance companies licensed by the states in which they live. This is why you find, for instance, Blue Cross and Blue Shield plans that are essentially privatized entities incorporated and sold exclusively in the states in which they are sold. Auto and home insurers have used this same approach for years.

Remember when Allstate and its Good Neighbor competitor dropped coverage on houses in hurricane-prone Florida and other coastal states? Insurance companies can cut bait in states where they have a subsidiary company underwriting their policies. Allstate wasn’t writing your policy, Mr. Homeowner. It was Allstate Floridian – a separate, but equally capitalized company that was set up to take cover when floods rolled in.
The Republican idea of buying health insurance across state lines has been altered a bit, but it is incorporated into the Democrats’ House and Senate bills, and expected to be the centrepiece of any health care legislation that wins final passage.

Congressional Republicans have proposed the concept in the past and Sen. John McCain, R-Ariz., embraced it as part of his 2008 presidential campaign. Advocates — including some insurers and small business groups — say it would give the more than 17 million Americans who buy individual coverage a greater choice of plans and the possibility of lower prices.

But critics, including the National Association of Insurance Commissioners say the provision would erode state government consumer protections, leave policyholders with inadequate coverage and could actually lead to higher premiums for some people. On the flip-side, allowing people to buy health insurance from any company regardless of where they call home would encourage competition for your business. That usually leads to lower prices and, in effect, more affordable health insurance for all.

Regardless of what Congress decides to do about health care reform, there are options readily available. Insurance companies report an increase in short term health insurance which in essence, provide guaranteed coverage for major medical expenses for a pre-determined amount of time. With the rise in unemployment and prospects of new job growth ever-stagnant, we can expect to see short term medical plans grow in popularity and affordability.

No matter how you slice it, insurance by its very nature is risk. Risk breeds fear. Fear breads inaction.
Critics say that selling insurance across state lines might not save much money, and point to a 2005 CBO report that says: “if only those benefit mandates imposed by the states with the lowest-cost mandates were in effect in all states, the price of individual health insurance would be reduced by about 5 percent, on average.”
But when you consider the cost of a major medical insurance plan for a chronically ill individual can approach an average of $400 per month, that 5 percent “on average” is money in the bank.

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