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July 25, 2005

You Try Your Way, I'll Try Mine

Certain Republicans -- and Republican outlets -- are very excited over Arizona Representative John Shadegg's bill to allow consumers to buy insurance from all 50 states.  The basic idea here is that, due to varying regulatory decisions, insurance in one place is cheaper than insurance in another.  It covers less and exposes you to more risk, but it's cheaper.  Under his bill, you could buy a cheap plan from, say, Missouri, even though you live in California, and even though the Missouri plan breaks California law. 

Ignoring the possibility that this'd be ruled unconstitutional, it's still a bad idea. It's fine, I guess, in that it'd make health care cheaper for certain folks (though it's unclear how many healthy ones it'd suck away from the overall risk pool), but it's a little odd to tell states -- particularly for Republicans to tell states -- that they can't regulate the insurance sold in their boundaries.

So why are Republicans contravening states rights? Because this is an insurance company giveaway: Insurers can simply find the least-regulated state, base their plans out of there, but advertise them everywhere. It'd be like producers selling goods in California but making them in New Hampshire and the federal government exempting the out-of-state goods from CA's sales tax.

 

For that reason, I'd be shocked to see this plan ever leave committee.  But in some ways, it'd be fine if it did.  The more anarchic, the more unpredictable, and the fractured Republicans make the insurance market, the faster costs will rise and the more states will beg for relief and sane construction.  I'm not one who believes in health care determinism (that bad policy will force single-payer), but stupid policy may well make allies where there were none before.  State governments, for instance, who'll no longer care to protect insurance companies that have long since stopped operating in-state.

If the WSJ is as concerned as they say they are about freeing health care from geography and ending employee fears that a move or job change will screw up their coverage, there are a variety of fantastic ways to end that.  Creating a Medicare Plus program that any family or small business could buy into, extending FEHBP so all consumers have the option...the plans are out there.  But Republicans and private insurers are scared to give consumers a public choice.  And so they don't.  Instead, they try and fix things through weird, free-market diversionary tactics like this, pretending that the real problem is intrusive government regulation and not an insane industry structure marred by perverse incentives. 

But that's okay.  As McQ (at QandO) says, "Choice.  What a concept."  Word to that.  So I'll make a deal: I'll support this if Republicans will let the federal government create a national health program consumers can buy into.  Then the private industry can compete with the public provider and we'll see who wins the day.

Choice.  What a concept!

July 25, 2005 in Health Care | Permalink

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Comments

I saw this myself, and honestly it looks like an idea worth considering, but I was willing to suspend full support until I heard a reasons against it.

I am somewhat disappointed that I didn't get a good analysis from you on this.

Basically the only contention you make is that this is bad because it violates federalism.

I will also admit that the anti-federalism bothers me, but with people like you advocating a national health care system because of the price of health care (which is largely a function the price of health care insurance) this has become a national issue. It seems disingenuous to call for Federalism while pushing for a national system.

You claim that this is an 'insurance company giveaway.' One would therefore expect insurance companies to support this bill? Do insurance companies in states like Kansas where the regulation is low get better margins than those in heavily regulated states? My guess is that the answer to both those questions is no.

Are the people in Kansas who are buying less regulated insurance facing more or less problems with insurance than those in heavily regulated states? If the entire country adopted Kansas's level of regulation (the de facto effect of this bill) what would be the harms that would ensue and what would be the benefits?

I find it hard to believe that less regulation of insurance companies would lead to higher costs, which you imply it would do. There is a possibility it would lead to poorer service, although the WSJ seems to refute that fairly well, at least enough to require serious points be made to prove that assertion.

I would appreciate a better analysis of this from a progressive point of view, hopefully an analysis that will look at the merits and focus on the fact that it is a Republican propossal and publicized in the WSJ.

Oh, and I will accept your deal if your national health program involves no cost to the federal government and does not use coersive power to stifle competition or fix prices.

Posted by: Dave Justus | Jul 25, 2005 7:02:14 PM

You get two things wrong here Dave:

1) I don't despise this bill. That's why I called it kinda stupid rather than bad. I do find it odd that Republicans are so cavalierly trampling state's rights (that's for liberals to do!), which is why it's worth looking into:

2) you're wrong on margins. The WSJ is being absurdly disengenuous when they place the blame on podiatry and chiropracter coverage. What this regulation generally has to do with is community ratings, preexisting conditions, and so forth. In essense, it's there to stop insurance companies from cherry picking the market. What this would do is allow them to cherry pick the market. The Missouri plan they mention is an HSA which is being compared to, most likely, a PPO. It's apples and oranges but it also has to do with how much consumer protection there is. In MI, not much.

Posted by: Ezra | Jul 25, 2005 7:32:16 PM

I believe that when plans were marketed across state lines which weren't regulated by state insurance commissioners, they wound up going broke and not paying their bills.

There's also that those of us who are currently covered by guaranteed issue policies will see all of the really healthy people leave the general pool.

Health Care for All of Massachusetts had an action alert on their blog about this.

July 22, 2005 More Bad Consumer Health Legislation from Capital Hill (from FamiliesUSA)

A bill known as the Health Care Choice Act would allow insurance companies to avoid consumer protections by selling individual health insurance across state lines, and is being rammed through the US House. Under this bill, insurance companies would only have to follow the laws of one state -- the state with the fewest consumer protections -- and could sell policies to consumers in all 50 states. This would create a "race to the bottom," leaving consumers with higher premiums, unpaid medical bills, and bare-bones coverage, hurting 26 million Americans who buy individual market coverage.

This legislation (H.R. 2355), introduced by John Shadegg (R-AZ), is moving quickly in the House. It is likely to come to a floor vote next week, while a companion bill, S. 1015, has been introduced in the Senate by Jim DeMint (R-SC). This bill has flown under the radar screen, and many members of Congress are unaware of the effects it would have on consumers. The so-called Health Care Choice Act is the wrong choice for consumers and a stealth attack on consumer protections, passing undetected.

Please call or e-mail your members of Congress and urge them to vote against the Health Care Choice Act. It is important that members of Congress get this message loud and strong: This legislation would hurt consumers and make insurance unaffordable. It is the wrong choice for health care consumers.

U.S. Capitol switchboard: 202-225-3121 (then ask for your Representative's office)
To find the number for your Representative's district office, visit Congress.org and type your zip code in the box.
Tell Members this bill would result in:
More consumers with unpaid medical bills,
Higher premiums and unfair premium increases, and
Bare-bones coverage that does not include critical services like diabetes treatment and cancer screening.
For more info on the Health Care Choice Act visit Families USA.

HCFAMA is a social justice oriented organization. If you e-mail Jim or click the feedback link on his blog, he'll give you an answer. Here's the blog.

Posted by: Bostoniangirl | Jul 25, 2005 7:35:16 PM

Well, regardless of the merits - if there be substantial merits - this nationalizaton of insurance won't happen. To my knowledge, the insurance industry is the only sector of the economy that has no national regulation of any kind . These companies have a very cozy relationship with the individual state regulators (insurance commissions or commissioners), over many years. They do not want the federal courts involved in claims and suits, as would be the case if national chartering were authorized by federal law.

Interestingly, we already have a nationalized insurance plan for flood insurance (the only plan available, to my knowledge). Insurers did not want to write insurance for this class of claims, so a national program (The National Flood Insurance Program) was authorized. Normal homeowners or business insurance not cover flood damage - which many people do not know.

The original purpose of state regulation was to prevent fake companies from selling insurance, undercapitalized companies from going broke and not paying claims, and companies denying claims on arbitrary grounds. There may have been reasons at one time for state-only regulation, perhaps in the different state laws and judicial interpretations on torts, inheritance, and fraud. The variance in laws has been reduced in recent decades thru the 'uniform law' movement, so that barrier may be irrelevant. All other US firms do business across state lines, and have some form of national regulation to observe.

It can hardly be argued that the insurance industry is not a national business engaging in interstate commerce, since all the familiar names in health, life, accident/liability, and auto insurance advertise nationally and their policies vary only to comply with peculiar state laws.

But establishing a national regulator with competance would be a huge task (something like the SEC), and it is extremely unlikely with a Repub. Congress and Executive.

But if United Health Care or New York Life gets out on a limb financially, no state can effectively prevent that, and there is no national regulator. This is a problem, but not a major problem for the well known companies. The problem is fly-by-night insurance companies that sell policies and then don't or can't pay claims. Fraudent insurance companies would bloom if policies could be written by 'out of state' firms, since the regulators would not have easy court access to them, and one of their major controls is licensing to do business in a particular state - which would be bypassed presumably by out of state companies.

A national health insurance program does not have to depend on providing a national regulator, or allowing companies to sell to out of state residents (bypassing the only regulation that exists - at the state level).

I know of no consumer pressure to change the way insurance is provided to the market and regulated, so I suspect that their is a good deal of hanky-panky involved in the current proposal. Winning a claim against an insurance company is hard now, so we should be cautious not to make it more difficult.

Every time you hear complaints against trial lawyers, think of the legions of company-employed and company-contracted lawyers the insurance industry has on their side. The insurance industry may be the single largest user of lawyers in our economy, and those guys play hardball.

Posted by: JimPortlandOR | Jul 25, 2005 7:53:09 PM

JimPortlandOR, It's not always true that insurers do business across state lines. Massachusetts auto insurance laws are so complicated that no out-of-state companies will enter the market. (In the case of auto insurance, I'm not saying that's a good thing.)

Posted by: Bostoniangirl | Jul 25, 2005 8:14:23 PM

Bostoniangirl: I should have made my comment clearer: It can hardly be argued that the insurance industry is not a national business engaging in interstate commerce So, the industry does, but not all companies do. The 'national' companies operate much like holding companies, with separate state subsidiaries (or state specific policies) that actually write the coverage.

The more I think of this, the worse this proposal sounds. If I, living in Oregon, have a claim against my health insurer located in Arkansas, (and I am not subject to mandatory arbitration), to whose courts to I turn? Oregon courts may have no authority over a AR company operating under AR laws. The federal courts will not hear the case. I'd have to locate an AR attorney to file a case in AR, and that sounds filled with problems. Would I get a fair deal in an AR court?

Even worse, Ezra's concerns about 'risk pooling' are far more scary. If the low risks all go to MO for insurance, the medium and high risks will be priced out of the market. This bill would end-run a state decision that they wanted risk-pooling - a sane policy that should be observed nationally, but would be eliminated by the proposed law.

If the AR company both failed to pay my OR claim and terminated my policy, what recourse would I have? I'd now have a record at the "Medical Information Bureau" for being terminated.

[more info on the MIB]:

3. The Medical Information Bureau (MIB) is a central database of medical information shared by insurance companies. Approximately 15 million Americans and Canadians are on file in the MIB's computers. About 600 insurance firms use the services of the MIB primarily to obtain information about life insurance and individual health insurance policy applicants.When you apply for life or health insurance as an individual, you are likely to be asked to provide information about your health. Sometimes you are required to be examined by a doctor and/or to have your blood and urine tested. If you have medical conditions that insurance companies consider significant, the insurance company will report that information to the MIB.The information contained in a typical MIB record is limited to codes for specific medical conditions and lifestyle choices. Examples include codes to indicate high blood pressure, asthma, diabetes, or depression. A code can signify participation in high-risk sports such as skydiving. A file would also include a code to indicate that the individual smokes cigarettes. The MIB uses 230 such codes.It's important to remember the following about the MIB:

The MIB is not subject to HIPAA. [Health Insurance Portability and Accountability Act, which controls privacy rights to medical records] MIB files do not include the totality of one's medical records as held by your health care provider. Rather it consists of codes signifying certain health conditions.
A decision on whether to insure you is not supposed to be based solely on the MIB report.

The MIB is a consumer reporting agency subject to the federal Fair Credit Reporting Act (FCRA). If you are denied insurance based on an MIB report, you are entitled to certain rights under the FCRA, including the ability to obtain a free report and the right to have erroneous information corrected. See the Federal Trade Commission's web site on insurance decisions, www.ftc.gov/bcp/conline/pubs/buspubs/insurers.htm.

Posted by: JimPortlandOR | Jul 25, 2005 8:39:36 PM

Ezra,

I didn't claim that you dispised it, I assumed that calling this kind of stupid though meant that you opposed it, and hoped that you would have good reasons for it.

While I may well be wrong on my guess as to the margins, and that was just a guess, I still don't see any evidence for that in your comment. Certainly I will accept that the biggest differenct in is the 'must carry' regulations, the WSJ claimed that as well, and while demanding podiatry may be stupid, it probably only accounts for a small increase in costs for each policy (although certainly I can imagine it being a boon for podiatrists.) Obviously the policies themselves will be different, and I expect that the policies in the highly regulated states are 'better.' 'better' for those that can afford them anyway.

The big question here is are there more people without insurance in the highly regulated states because of higher prices, or are their more people in in low regulated states because of inability to find coverage due to a pre-existing condition. Both conditions are unfortunate, but which is the more serious problem?

Jim,

The WSJ compares this to the deregulation of banking, that allowed out of out of state banks to operate branches in various states. I would assume that the same sort of legal issues regarding state law and jurisdiction apply to banking as they do to health insurance. Presumably they have been dealt with satifactorily.

If I am wrong here, what is different and why does it work acceptably for banking but would not work acceptibly for insurance?

Posted by: Dave Justus | Jul 25, 2005 8:58:23 PM

Dave and Jim,

It's entirely possible that the cases would get removed to Federal court on diversity grounds.

Posted by: bostoniangirl | Jul 25, 2005 10:08:13 PM

Dave and Jim,

It's entirely possible that the cases would get removed to Federal court on diversity grounds, but you'd probably be able to claim that by doing business in another state you met International Shoe's minimum contacts requirement for personal jurisdiction.

Posted by: bostoniangirl | Jul 25, 2005 10:09:48 PM

Dave: the comparison to banking is faulty, because their were already several Federal regulators of banks: the Federal Reserve, the Comptroller of the Currency, FSLIC, etc. Banking deregulation primarily affected state chartered banks - small in size and impact. Banks doing business in several states were in effect transfered from state supervision to existing federal regulation.

Most of the banks (and branches) and most of the capital was already regulated (National Banks) prior to deregulation. There were numerous federal laws on bank robbery, fraud, wire fraud, misappropriation, deposit insurance, etc. prior to deregulation of banks. This is not true in the case of insurance companies.

As to federal court jurisdiction, I'm not a lawyer, but my guess is: (1) it would be unlikely that any law now passed by the Repub Congress would expressly create federal court jurisdiction for resolving claims across states involving insurance companies; (2) without a federal statute to point to, federal courts would be very reluctant to intervene (this isn't a state versus state issue, but company versus person issue - across state lines;) (3) it would take decades for a new framework for federal court jurisprudence to emerge from the numerous appeals in different appellate courts and at the SCOTUS level; (5) Insurance companies may well support this proposal, but their support would likely disappear the moment it became clear that a new federal regulator would supervise them.

Any movement to allow insurance companies to do business nationally without an accompanying federal regulator and authorizing legislation for regulation - including court jurisdiction - is dangerous.

The existing Federal Employees Health Benefit Program (FEHBP) already contacts with insurance companies in many states to cover federal employees, and this program includes must carry provisions that ensure that cherry picking doesn't happen and the advantages of risk pooling is achieved. This kind of program nationwide for all that wanted to be covered achieves high quality, moderate cost, and choice of coverage, without the need for federal regulation, federal courts, and the difficulties that a wholesale partial change in insurance process. I can see no benefit to the proposed law compared to just expanding the scope of FEHBP or some similar program.

Posted by: JimPortlandOR | Jul 26, 2005 3:31:18 AM

Is there seriously no federal insurance regulator at all? Jesus. So are all the subsidiaries of the big companies separately capitalised? What's to prevent the collapse of, say, New York's insurers bringing down the entire country's industry?

Posted by: Ginger Yellow | Jul 26, 2005 6:35:44 AM

There are numerous federal laws that apply to insurance companies as well, and of course there were, and are, state laws that apply to banks.

In fact, banks and insurance companies are now quite often a single entity.

Certainly individuals contract with various entities from different states than their states of residence all of the time. State courts have generally not had any difficulty dealing with these differing jurisdictions and I do not see any issue with them doing so for insurance as well.

Posted by: Dave Justus | Jul 26, 2005 10:35:33 AM

If I'm reading this thing right, it applies only to individual policies, not the group policies that cover most of us through our employers. And the individual health insurance market is so horribly screwed up that it's hard to believe that this could make things much worse. But it doesn't seem likely to make things much better, either, and I agree that the idea of federal legislation establishing the weakest state law as a governing national standard is a really ugly precedent to set.

Posted by: DaveL | Jul 26, 2005 2:29:13 PM

I don't what the problem is with MA regulating auto-insurance. As a Step 9 driver (the lowest you can get in MA) I have a lower rate for comprehensive coverage than most of the other people who own the same exact model and options but in different states do. MA insurance companies like Commerce, who I go through, seems to be doing just fine.

Posted by: Adrock | Jul 26, 2005 3:29:56 PM

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Posted by: peter.w | Sep 17, 2007 2:33:35 AM

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