First off, the idea about buying/selling across states lines is off. You can't say that "If the insurers selling from state X are bad then just don't buy from them" will work. That ignores how insurer domestication works. Each insurer has a state that it is domiciled in. That home state regulates the financial solvency of the insurer as well as its operations in that state. If the insurer wishes to do business in another state it registers as a foreign insurer. It does not become subject to the solvency regulation of the new state but it does become subject to the operational regulation of the new state. In "sell across state lines" talk we're discussing that an insurer choosing to do business in another state, one in which they currently would be required to register as a foreign insurer and be subject to operational regulation, would no longer be required to register as a foreign insurer and would not be subject to operational regulation. It would only be subject to regulation from it's home state.
In that scenario every insurer would just redomesticate to state X and there would be no other insurers to choose from.
Now, for your point above, do you have any idea how hard it is to start an insurance company? Don't you think there's a reason that almost every every ACA co-op failed despite being given almost every advantage in the book? It's really tough. It would be even more so if there were an unlevel playing field like a state with exceptionally lax regulatory requirements domiciling the big insurers while new ones tried to form locally.
Interesting info, thank you!..
Let me ask you this...If I'm an insurance company, it costs me money to enter a new state - I've got to establish contracts with the medical providers in that state, obtain a business license and comply with the various regulations surrounding that (e.g., registered agent for service of process), market my plan to that state's residents, etc. Right now, as an insurer I can open up shop in as many states as I want, as long as I am willing to go through the process to do so. correct?
Wouldn't the benefit from "selling across state lines" be having ONE regulatory regime with which I must comply? I can sell insurance in both New Jersey and New York but only have to deal with the regulators in one of those states. I have a strong incentive to pick the regulatory regime that is most profitable for me. "Minimum regulatory standards" is only part of the issue, because *enforcement* of those standards is also a function of state regulators.
Some states are rather notorious for a cozy relationship between state regulators and the industry they are supposed to be regulating. Even where regulators aren't overly cozy, there are still perverse incentives. For example, if I am the elected insurance commissioner in Kansas, what's my motivation to care what happens to customers in New York? They didn't elect me, and they won't re-elect me no matter how good a job I do for them. The company that I regulate that provides their coverage, however, is a potential source of campaign contributions for me. I assuming this would be ripe for fraud