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Report: McCain Proposal to Sell Insurance Across State Lines Not the Answer

By Claire Leavitt, CQ Staff

October 10, 2008 -- Republican presidential candidate Sen. John McCain's proposal to allow individuals to buy insurance across state lines would decrease access to health insurance, according to a new report issued by the New America Foundation, a think tank that bills itself as non-partisan.

The proposal, which the report calls "devastating," would permit private insurers to abide only by health care regulations mandated by the state in which the insurance company is based, not the state where the customer lives.

The thrust of McCain's plan is to eliminate the "exclusion"—a provision of tax law that keeps employees from having to count as taxable income the yearly sum their employer pays toward their health insurance premiums (premiums would still be excluded in calculating payroll taxes, however). Instead, the plans offers families up to $5,000 and individuals up to $2,500 in tax credits, which they can use to buy individual coverage from across state lines if they so choose.

Most critics of the across-state-lines proposal argue that getting rid of the exclusion will lead to fewer employers offering health benefits and previously insured Americans getting thrown head first into the individual insurance marketplace, which is "virtually unregulated," according to the report. It contends that coverage sold across state lines will not succeed unless insurers are subject to federal regulations.

The McCain plan would drive up premiums and eliminate certain care guarantees, the report said. The expanded customer market would provide more incentives for insurers to "deny people coverage or charge people more based on their health history," and access to health care nationwide would then decline, it said.

Supporters of the McCain proposal say that, thanks to the expanded insurance market suddenly available to customers, premium costs will actually decrease as people gain additional incentives to opt out of plans that include expensive benefit mandates.

The report dismissed the idea that "high-risk pools," state-run associations that provide health coverage to people who have preexisting conditions or who are deemed likely to need care in the near future, will help mitigate the negative effects of sales across state lines, unless the pools are "exceptionally well-funded." McCain has voiced support for federal funding for state-run high-risk pools, which he claims will make it easier for the sickest Americans to receive coverage.

Elizabeth Carpenter, a senior associate for the New America Foundation's Health Policy Program, says high-risk pools "are a step" towards solving the premium problem for at-risk Americans but "the [financial] commitment has to be there, and at a higher level than it has been to date." Success would depend on the actual level of federal financial support McCain would provide if he were elected.

While the National Association of Health Underwriters (NAHU) has not taken a position on McCain's proposal, senior vice president of Government Affairs Jessica Waltman maintained there is "lots of evidence that differences in state regulations can have a profound effect on price," and sometimes "that difference is just astounding."

According to a NAHU fact sheet, the cost difference for a healthy male of an insurance plan with a $1,000 deductible in neighboring states Pennsylvania and New Jersey can run as much as $5,750. "The main issue here is, health care is expensive," Waltman said, "and anything we can do to contain costs" is worth considering.

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