Honest question, what's the argument against allowing insurance companies to sell health insurance across state lines? Why is that a restriction to begin with? What's the downside or proposed downside to lifting that restriction?
I don't agree with the ideas that it would solve most problems with health care costs, but I don't understand what the downside is to it. There must be something though since it hasn't happened yet.
I've always wondered this as well. Fragmenting markets by state seems counter to the desire to have larger insurance pools.
A primary reason the industry wants to sell across state lines, in my opinion, is reserve requirements. Insurers all are required to have reserves, so they can pay out claims. State insurance commissioners set between an 8-12% requirement for health insurers (they've all currently agreed on a formula -- look up the National Associaiton of Insurance Commissioners if you want some bedtime reading material). Anyway, health insurance is a huge industry (I think total premiums were well over $1 trillion last year). State insurance commissioners are pretty dull and conservative folks, and when the decision is collectively made at the national level, it's a tough sell to lower the reserve. But imagine you could get just one state to change the formula and lower the reserve by a single percentage point -- doesn't sound like a big deal, but 1% on $1 trillion is $10 billion. That's $10 billion that health insurers, collectively, could not have sitting in the bank earning a low interest rate. Instead, they could put that money in higher yield (and higher risk) investments. If they're able to earn 10% instead of <1% on that, it's nearly $1 billion in extra revenue for insurers to pay their executives and shareholders.
Of course, reserves are there to pay out claims. If there is a sudden financial collapse like in 2008, more money in riskier securities could lead to much less financially sound insurers, causing either a collapse of the health insurance market (which could in turn hurt the health services market as doctors and hospitals don't get paid) or another major government bailout. And if you only need to convince one state-level insurance body to change the requirement, it's not too high of a hurdle.
There are other reasons too (it will lead to consolidation in the industry, which will lead to a combination of higher prices for policyholders and lower payouts for medical providers -- that's pretty basic economics). But insurers are supposed to be risk-reducing -- however, as risk-reduction is at odds with short-term profit maximization in most years, regulation is needed to keep them on track. Selling across state lines can eliminate this regulation, as the Secretary of Labor appointed by the Governor of South Dakota, for instance, can now make a "small" change to reserve requirements to induce the entire health insurance industry to set up shop in Sioux Falls. And no one will notice until it all breaks in 20 years. The collaborative approach created by the individual state markets offers a very strong check on this problem.