Residents may reside in one jurisdiction but work and obtain health insurance in another. Today, in advance of health reform, insurers make adjustments in order to do business in such areas.

For example, two Blue Cross Blue Shield (BCBS) plans operate in Kansas—Kansas BCBS and Kansas City BCBS. Kansas BCBS operates statewide except for the Kansas City metro area. Kansas City BCBS sells coverage only in the metro area and is licensed in both Kansas and Missouri. To the extent these two states have different rules governing health insurance, Kansas City BCBS follows the more stringent rule for all of its policies. In the context of health reform that provides for individual and employer mandates, it will be important to adopt structures that facilitate the purchase of coverage, making health insurance as affordable, efficient, and administratively simple as possible. For firms whose workers reside in different jurisdictions, regional exchanges could simplify coverage choices, the administration of subsidies, enforcement of mandates, and other key reform changes.

3. States might establish multi-state exchanges to promote pooling across state lines.

States jointly operating an exchange could choose to have insurers set identical prices for products sold in both states. However, whether risk pooling across state lines might occur would depend on the rating areas for health insurance that states establish. As discussed above, it seems unlikely that a lower-cost state would agree to pool risks and costs with a higher-cost state. Under the law, states will establish geographic rating areas for health insurance, subject to federal approval. Therefore, for example, even though Kansas and Missouri might decide to jointly operate a single exchange for their residents, if the cost of coverage across these two states is very dissimilar, they might decide to maintain distinct rating areas within the exchange for Kansas and Missouri and might even maintain substate rating areas.

4. Multi-state exchanges could create the necessary critical mass of insured persons to establish stable risk pools by combining markets in small population states.

The minimum size for a credible risk pool is generally perceived to be about 100,000 lives. Thus, multi-state exchanges could be particularly useful for sparsely populated regions of the United States. Buettgens, Holahan and Carroll (2011) estimate the enrollment in state non-group health insurance exchanges under the ACA, based upon 2011 population estimates.

For example, they estimate enrollment in the non-group health insurance exchanges of Vermont, the District of Columbia, North Dakota, South Dakota, Wyoming, Alaska and Hawaii at 48,000, 49,000, 76,000, 82,000, 58,000, 61,000 and 64,000, respectively. Theoretically, at least, these states could participate in exchanges jointly with other states in order to establish more financially sound pools.

However, obstacles could occur that would prevent cross-state exchanges from achieving such critical mass. For example, to operate in a multi-state exchange and operate everywhere within it, insurers would need to develop and maintain provider networks that reached broadly across the participating states. A Wyoming insurer may be unable to establish a robust provider network in Idaho, for example. In addition, introducing additional plans into small population areas could further fragment existing risk pools, particularly in the absence of effective risk adjustment