Interstate Commerce in Health Insurance

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Proposed Insurance Market Reforms >> Interstate Commerce in Health Insurance (last updated 11.6.17)


  • In 1944, the Supreme Court ruled that insurance is subject to Congressional authority under the Constitution’s interstate commerce clause.
  • The McCarran-Ferguson Act enacted in 1945 provides that the antitrust laws, including the Sherman Act, the Clayton Act, and the Federal Trade Commission Act, shall apply to the “business of insurance” only to the extent it is not regulated by a state, and shall also apply to boycotts, coercion and intimidation. As interpreted by the courts, the law exempts the business of insurance from government and private antitrust liability, unless the conduct is unregulated by a state or goes beyond otherwise actionable restraints of trade to constitute boycotts, coercion or intimidation.
  • The Employee Retiree Income Security Act (ERISA) enacted in 1974 exempted self-insured health insurance plans from state regulation, placing the authority for regulating such plans in the U.S. Department of Labor.
  • The Health Insurance Portability and Accountability Act (HIPAA) was the first intrusion of the federal government into actual regulation of private health insurance, including the individual and small group markets.
  • The Affordable Care Act substantially increased the level of federal regulation of private health insurance, establishing rules about eligibility, benefits and pricing of insurance policies across the market and creating state-level health insurance exchanges.
  • Section 1333 of the Affordable Care Act allows states to agree to “health care choice compacts” that would allow health insurance companies to sell their products across state lines. According to Jamie Dupree (3.18.17), “the fine print from 2010 shows us that the feds were to work with the National Association of Insurance Commissioners to develop regulations for that interstate sale of health insurance. But those regulations for ‘interstate health care choice compacts’ between states were never issued – in fact, the Obama Administration never consulted the NAIC at all… Since those regulations have never been issued, that would seemingly give a big opening to Health and Human Services Secretary Tom Price to administratively make the push for interstate sale of health insurance – since he would now be in charge of setting the ground rules.”

State Laws Allowing Out-of-State Sales of Health Policies

According to the National Conference of State Legislatures (8.1.17),

  • Rhode Island was the first state to pass an out-of-state purchasing law, signed in 2008, to create a regional health insurance compact, similar to the design later authorized by the PPACA in 2010.
  • Wyoming was the first state, in March 2010, to enact a signed law based on the free-market model but also including a multi-state compact related to federal health reform.
  • Georgia, HB 47 – Signed into law May 2011, in the first state with a law drafted and passed since the federal Affordable Care Act became law.
  • Kentucky HB 265 – Signed into law, 2012).
  • Maine HB 979 – Signed into law, 2011; effective date Jan.1, 2014).
  • Oklahoma – SB 478Signed into law, 5/31/2017.

Reform Proposals

Interstate Compact for Health Insurance

Some market-oriented reform proponents have argued for allowing the purchase of health insurance across state lines. One possible means of achieving this is through the interstate compact, which is a well-established mechanism used in other areas of insurance, including life insurance and long-term care coverage.  John Graham has briefly described how such a compact might work.

In the wake of the 2016 elections, which left Republicans in charge of Congress and the White House, states run by Progressives are considering interstate compacts as a means of preserving ACA provisions.

  • How Treaties Between States Could Keep Obamacare Alive. “Across the country, Democrats have vowed to fight efforts from congressional Republicans and the White House to repeal the Affordable Care Act—a task that grows more complicated by the day. Yet even if the law is repealed, with or without a replacement, progressives could still have recourse at the state level. A widely used form of treaty between states could allow them to bond together and set up their own multistate health-care programs to fill the gaps created by the federal government. In an age of retreating federal programs, interstate compacts could be a tool for progressive states to enact a regional or even nationwide agenda… Elridge sees new state leaders taking up health-care compacts again, but not before they know more about what a Trump administration plans to do.” (The Atlantic, 2.4.17)

Federal Charter for Health Insurance

Representatives Melissa Bean and Edward Royce introduced H.R. 1880 in the House on April 2, 2009. The bill was referred to the House Financial Services Committee, House Judiciary Committee and House Energy and Commerce Committee. No hearings or markups have been held on this bill:

  • This bill would create a federal charter for the insurance industry, including insurers, insurance agencies, and independent insurance producers.
  • The federal insurance regulatory apparatus would be an independent entity under the Department of the Treasury and would preempt most state insurance laws for nationally regulated entities.
  • Thus, nationally licensed insurers, agencies, and producers would be able to operate in the entire United States without fulfilling the requirements of each individual 50 states’ insurance laws (CRS 2009: 11).

Health Care Compact (HCC)

In January 2011, an organization called the Health Care Compact Alliance (HCCA) held an event in Houston, Texas where they unveiled the text of the Health Care Compact (HCC or Compact). Advocates of the Compact have stated the Compact will let states opt out of federal health care regulations, including those contained in ObamaCare, and convert federal spending for most federal health care programs into a grant to the states to let them establish a state-based alternative to current federal programs, including Medicare, Medicaid and CHIP.


  • Further discussion of McCarran Ferguson Act and anti-trust regulations is at the U.S. Health Policy Gateway’s Health Care Antitrust page.
  • Further discussion of ERISA is at the U.S. Health Policy Gateway’s ERISA page.
  • Miller, TomThe “Blurred Lines” of Trump’s Health Plan (He Knows You Want It). (3.1.16)Provides a very detailed history of the conceptual underpinnings and various bills introduced in Congress related to this idea. “I wrote the first draft in policy terms at a Cato conference in July 2001, and subsequently published the academic-style version in the Cato Journal the following year. Then-Rep. Ernie Fletcher (R-KY) proposed the first legislative bill on this front in 2002. Subsequent tweaks to those concepts on Capitol Hill were championed by then-Rep. John Shadegg (R-AZ), and, in later years, by Rep. Tom Price (R-GA) and Rep. Marsha Blackburn (R-TN). Presidential candidate Ted Cruz introduced a bill similar to Blackburn’s in the U.S. Senate.”
  • Clancy, DeanThe Most Popular Republican Talking Point On Health Care Is Wrong. The Federalist (5.14.14). Argues that bills by Congressmen Phil Roe (R-TN), Tom Price (R-GA), and Paul Broun (R-GA) — that call for allowing the purchase of health insurance across state lines — are unconstitutional and unnecessary.
  • CRSInsurance Regulation: Issues, Background, and Legislation in the 111th Congress. Congressional Research Service, R40771, August 19, 2009. [Full Text (pdf)]
  • Graham, John R. Blue-Sky Thinking on Health Reform: An Interstate Compact for Health Insurance. Pacific Research Institute, December 2010.
  • Kopel, David B. and Rob Natelson. Health Insurance Is Not “Commerce. Cato Institute, March 28, 2011. Authors argue that health insurance is not interstate commerce and that the lone 1944 Supreme Court case ruling that it was should be overturned.
  • Insurance industry expert Bob Laszewski is critical of the idea of selling health coverage across state lines for several reasons:
    • New entrants could skim the best risks leaving legacy carriers such as Blue Cross plans that have adopted all of a state’s mandates with a disproportionately sick population to insure.
    • Decades ago, it was much easier to just set up an insurance company in a state since ability to pay claims is all that was needed to compete. Today building a new market can take hundreds of millions of dollars since carriers have to create a comprehensively managed provider network.
    • If the problem this solution is trying to solve is too many mandates, why not solve that problem directly by getting rid of them and creating a level playing field for everyone?
  • McLaughlin, Dan. Why Selling Health Insurance Across State Lines Is a Good Thing: A Response To Dean Clancy. The Federalist (5.28.14). “Clancy’s case against an interstate individual health insurance market relies on two seriously flawed arguments and illustrates why Republican health care plans generally also propose some of the additional steps he suggests to make such a market viable.”
  • National Association of Insurance Commissioners & The Center for Insurance Policy and Research. Interstate Health Insurance Sales: Myth vs. Reality. “[I]nterstate sales of insurance will allow insurers to choose their regulator, the very dynamic that led to the financial collapse that has left millions of Americans without jobs. It would also make insurance less available, make insurers less accountable, and prevent regulators from assisting consumers in their states.”
  • National Center for Policy Analysis. Interstate Competition in the Individual Health Insurance Marketplace.
  • Parente, Stephen, Roger Feldman, Jean Abraham, Yi XuConsumer Response to a National Marketplace for Individual Health Insurance. University of Minnesota, Carlson School of Business, June 28, 2008. “This paper calculates the impact of allowing interstate commerce in health insurance. Under the minimum, moderate and maximum effects of state policies, there is improvement in the level of insurance. The impact ranges from 69,444 (minimum) to 11.6 million (maximum) newly insured from a base number of 47 million uninsured. The moderate impact is 7.5 million newly insured individuals. Most of that effect is observed in the individual market.”
  • MedPage Today: Eye On Repeal/Replace: Selling Insurance Across State Lines. “In this video, MedPage Today asks Marianne Udow-Phillips, MHSA, executive director for the Center for Healthcare Research & Transformation (CHRT) at the University of Michigan, and Michael Cannon, director of health policy studies at the Cato Institute, how multi-state insurance policies might be implemented, and whether they would improve healthcare access and quality.” (MedPage, 10.2.17)

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