Selling health insurance across state lines

Ezra Klein blogs today about why letting insurers sell health insurance across state lines is a terrible idea - using the model of what happened when South Dakota offered to let the credit card industry "write the regs" and many credit card companies moved to that state.  He's done a pretty complete job in recounting the cons -  we would likely have a small, economically distressed, conservative state dictating our health care coverage, and while costs would go down for healthy people, they would go up for those with illness.

I have one item to add to Klein's litany of concerns.  It's been a long time since a sizable health insurer went bankrupt, but this used to happen with some frequency.  State regulators insist on adequate rates of capitalization, so that if an insurer become insolvent those who already paid for coverage would not be left in the lurch. Local regulators also have the leverage to force other regulated plans to have an unscheduled open enrollment for members of a failed health plan.

It's politically important for the New York Attorney General to be sure that New Yorkers are not shut out of health care coverage.   The Alabama Attorney General might not feel that protecting New Yorkers is as much of a political necessity!

Advocates of selling insurance across lines say that this would increase competition.  However, it would increase the wrong competition - competition to attract the healthiest beneficiaries.  It would not increase competition to actually improve the cost-effectiveness of health care.