Editorial: Consumers deserve healthy competition

Disregard the partisan hype over proposals by Gov. Tim Pawlenty and other Republicans to sell health insurance across state lines. Doing so would not bring the health care system crashing to a halt, as opponents claim. But neither is it the panacea for the nation's health care woes that proponents make it out to be.

The reality is that if sensible precautions are taken, this approach to increase competition between health insurers could play a small but substantive role in controlling consumers' soaring health insurance premium costs. Pawlenty's innovative push for a regional compact of states to make this happen, as well as measures in both the U.S. House and the Senate Finance Committee health bills that could enable it, merit careful consideration.

Consumers are likely to hear more about selling health insurance across state lines as the Senate takes up health reform in the weeks ahead. This was a pillar of the Republicans' failed alternative to the U.S. House health care bill. Advocates for this market-oriented approach will push to strengthen provisions in current legislation; those who dismiss the concept outright haven't taken time to study it.

The "across state lines" moniker is a bit misleading. Out-of-state health insurance companies can already sell coverage in Minnesota and elsewhere -- as long as they comply with each state's regulations. Because these laws are so different -- laws vary wildly in what procedures must be covered, for example -- most states are dominated by a handful or less of insurers. In Minnesota, three insurers have about 85 percent of the fully insured market.

What would change under an "across state lines" approach is that insurers' operations and coverage could be dictated by other states' regulations -- such as where they have headquarters or where they're already doing business. Or, as Pawlenty's proposal calls for, by a multistate agreement standardizing regulations and coverage. A similar compact overseeing sales of other insurance products in more than 30 states already exists.

Potentially, there could more companies competing in Minnesota and other states, and using economies of scale, they'd control premium costs. But there are serious downsides if this isn't managed smartly. For example, without the right regulations insurers would rush to set up shop in the nation's least regulated state. These firms would have an unfair advantage over plans in heavily regulated states like Minnesota. Minnesotans and others could also wind up buying far less comprehensive coverage -- perhaps unknowingly -- from a company with headquarters in a less regulated state.

"If we simply pass a law that says anyone can sell health insurance across state lines, that would be a disaster, a race to the bottom,'' said Joel Ario, a Minnesota native who is now Pennsylvania's insurance commissioner and vice chair of the National Association of Insurance Commissioners' health care committee. "But if you can develop a compact that ensures good consumer protections ... then it's a good idea.''

The Pawlenty proposal is still in the early stages; much more detail is needed from the governor's office. How would it work? Who would benefit -- those with individual coverage, those with employer-provided coverage, or both? How much would consumers save? That's an important question because utilization drives health care costs far more than coverage mandates. A multistate compact governing health insurance would be much more challenging to put together than the one governing life insurance, but it is doable, according to Ario. But if that doesn't happen, do Minnesota's regulations need reform to keep consumer costs down and entice more insurers to operate here? Many insurers have entered this market and left.

Minnesota's average consumer health premiums are some of the most expensive in the nation. Left unchecked, the total annual family premium is expected to hit $26,441 by 2020. Competition is one tool that could help slow this skyrocketing price tag. Every possible solution must be explored to keep coverage affordable.