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Why not have cross-state sales?

By Carol Gentry
11/10/2009 © Health News Florida

The argument in favor of letting insurers sell health policies across state lines makes sense: Some states have cheaper insurance because they have fewer coverage requirements.
 
It's a compelling argument for small businesses and others who seek control of rising premiums. (See Kaiser Health News' Q&A.)

The argument against it, put forward by the National Association of Insurance Commissioners, is that when policies are sold across state lines it's hard to regulate them. 

A case study that illustrates their argument is that of Medical Savings Insurance Co., which left Florida last year after creating years of havoc for thousands of patients.

The Indiana-based company was founded by the late J. Patrick Rooney, a Republican fundraiser and free-marketeer who believed the best approach to health reform was through lean health policies attached to health savings accounts. He saw them as offering freedom of choice and an incentive to avoid over-spending.

To gain access to the lucrative Florida market, Rooney took advantage of an exclusion in federal law that lets "associations," such as AARP, sell policies nationwide.  He affiliated his company with what the Florida Office of Insurance Regulation described as "political lobbying groups." The one that Floridians had to join to get a policy was Freedom Works, the anti-tax group that former former Majority Leader Dick Armey now runs.

As more and more Floridians bought Medical Savings policies, some began to incur hospital bills. Rooney thought hospital bills were outrageously inflated and refused to pay what they demanded. He said he would pay only Medicare rates plus 25 percent.

Medical Savings sent the hospitals checks for only about one-third of the bill. Hospitals balked at accepting that. 

They fought Rooney through the courts, meanwhile billing the patients for the unpaid balance. Many ended up in debt, hounded by collection agents.

In an article last yearHealth News Florida described what happened to Medical Savings customer Nancy Smythe. She learned she had cancer at the same time she found out her policy would pay only $4,000 of her $25,000 hospital bill.

The argument with Medical Savings went on all during her chemotherapy. "Little did I know that the fight of my life was not only to battle cancer but also to battle the insurance company," she said.

Hospitals successfully fought Rooney in the courts, forcing him to settle the debts of thousands of patients. A state  insurance department report in 2006 cited the company for violating truth-in-marketing regulations. While the state's authority in dealing with an out-of-state association was limited, OIR applied pressure wherever it found an opening.

In 2008, Rooney died. Medical Savings pulled out of Florida, and in December, Indiana's Insurance Commissioner took control of the company, saying it was insolvent and had "fallen out of compliance with industry standards." Courts in Indiana ordered the company into liquidation in February.

--Carol Gentry, Editor, can be reached at 727-410-3266.