UPDATED 16:30 I’ve modified the piece to make it clear that I am leaping off of Bruce Japsen’s post instead of criticizing. My apologies.
Bruce Japsen at Forbes argues that the network assembly problem will make selling across state lines irrelevant. This has me thinking about of the expansion of association health plans that may occur soon.
Health insurance companies in some states can already sell health coverage across state lines, but it hasn’t worked in large part because plans haven’t wanted to spend the money contracting with more doctors and hospitals in areas they have no enrollees. Six states have enacted laws allowing health plan sales across state lines and “no state was known to actually offer or sell such policies,” National Conference of State Legislatures said in a new report last week.
“In the states that have tried to do this, there has been zero interest from carriers,….
As a rule of thumb in insurance, the larger the network the higher the costs so that’s why insurers and self-insured employers are moving to narrower networks. Insurers also rent networks that they don’t build on their own, but that adds to healthcare costs, too.
I think he is wrong in a fundamental assumption that the association health plans that could spring up or be revitalized by a Trump Executive Order would actually seek to provide healthcare. Association health plans under a plausible Trump executive order are not interested in covering sick people. They are a regulatory arbitrage play and not a health finance play. If association health plans are all classified as large group, ERISA regulated, plans, they do not need to meet ACA mandates. In my opinion, these new plans would be cherry picking machines.They would be seeking to only find very healthy individuals that they can medically underwrite and offer them a high deductible plan that acts as a further screen on health.
From my assumption that these plans would be cherry picking machines, building a network is simple. Insurers can rent networks that are built by a third party company. These networks will be legally adequate and very expensive on a per unit of service provided basis. However if the underwriting department is any good, the association health plan will be paying for very few units of service.
The network might be expensive but that only matters if the insurer is covering sick people. If they are only covering the least risky 50% of the population that drives 3% or less of total claims costs, network is minimally relevant. It is the ERISA designation that would enable these plans to operate a cherry picking business model, not a network edge.