Deregulating The Health Insurance Industry

In the latest edition of Contingencies, a journal of the American Academy of Actuaries, Sen. John McCain (R-AZ) makes his case for deregulating the health insurance industry by extolling the benefits of the last decade of deregulation in the banking sector. “Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation,” McCain writes. Since the banking industry’s collapse this week, the McCain campaign has tried to distance itself from the senator’s remarks, claiming that McCain was referring to “policies which allowed Americans to use an ATM anywhere in this country.” But McCain’s proposal to allow health insurance companies to sell policies across state lines is evidence that the senator supports the same kind of  deregulatory polices that created the economic crisis. The latest financial meltdown highlights the dangers of deregulating the health insurance industry and only underscores the sheer impracticality of McCain’s proposal.

STATES FILL REGULATORY VOID: In 2002, to combat predatory lending and protect its citizens from “the wrenching costs associated with overpayment and eventual foreclosure,” several state legislatures “decided to stanch the flow of easy credit to subprime lenders.” The Georgia Fair Lending Act, for instance, imposed liabilities on lenders in the secondary mortgage market who engaged in predatory lending. “New York, New Jersey, and New Mexico made the same judgment and within two years had enacted their own versions of laws exposing downstream owners of loans to fines if they bought predatory loans,” Slate reported. But in 2003, the federal government overruled the states and exempted national banks from the new regulations. John D. Hawke Jr., the comptroller of The Office of the Comptroller of the Currency said, “We have no evidence that national banks are engaged in predatory lending practices.”

MCCAIN’S PLAN TO DEREGULATE HEALTH CARE: McCain’s proposal to allow health insurance companies to sell policies across state lines would allow insurers, like the banks before them, to ignore consumer protections and sell bare-bones policies with high out-of-pocket expenses. In fact, by creating a deregulated national marketplace in which insurers no longer have to comply with rules that require they provide cancer screenings, maternity care, mammograms, and emergency services, or abide by rules that “limit the rates that can be charged to higher-cost consumers and that limit who can be excluded for a health plan,” insurance companies could sell plans across the country that lack even the most basic consumer protections. Fewer requirements would translate into cheaper but less comprehensive policies which would pull heathier individuals out of larger insurance pools. A recent analysis of McCain’s health care proposal from the Center for American Progress Action Fund points out that as healthy individuals vie for cheaper policies across state lines, states with more stringent consumer protections would be left with sicker and more expensive patients, increasing health care costs across the board. A study published in Health Affairs predicts that in McCain’s deregulated insurance marketplace, insurance providers would have an incentive to “develop ‘bare-bones’ insurance policies…however, for most uninsured families, the benefits of such policies in terms of protection from financial risk and access to medical care would likely be very small and take-up would be much lower than if plans were more generous.” More alarmingly, the McCain plan could potentially erode solvency requirements — which vary between states —  that ensure that insurance companies will be able to meet all of their promises to pay medical bills. As the Washington Post’s Bob Herbert observed, “you would think that with some of the most venerable houses on Wall Street crumbling like sand castles right before our eyes, we’d be a little wary about spreading this toxic formula even further into the health care system.”

MCCAIN’S DEREGULATION HYPOCRISY: On some level, McCain recognizes the consequences of deregulation and limited oversight. In fact, the senator has attributed the current financial crisis to “failed regulation, reckless management, and a casino culture on Wall Street,” blaming regulators for “falling asleep at the switch” and proposing greater government regulation and more oversight of the Bush administration’s $700 billion bail-out plan.” Under my reforms, the American people will be protected by comprehensive regulations that will apply the rules and enforce them in full,” McCain promised. Unfortunately, the senator is not applying the same standards to his health care plan. According to CQ HealthBeat, McCain campaign will not “make changes to their health care proposals in response to the current economic downturn.” Without changes, American families can expect to face the same financial crisis America’s biggest investment firms. But unfortunately, when American families fall into financial crisis, the American government won’t be there to bail them out.

www.americanprogressaction.org