Beginning of the end of state-based insurance regulation

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While health insurance might have the media and public’s attention at the moment, unbeknownst to most Americans there a more fundamental struggle occurring - the struggle between the states and the Federal government as to who should regulate insurance products, and who is best positioned to protect consumers.

For over 140 years, regulation of the insurance industry has occurred on the state level. State-based insurance regulation has proven its value over and over again: having 51 sets of eyes on the insurance industry has protected consumers from risk and loss at affordable levels, and provided security and stability for countless companies and industries. State-based regulation has allowed small to mid-sized companies to survive and flourish, even when faced with competition from massive multi-national conglomerates.

However, there are those in positions of power that want to change this regulatory framework and turn insurance regulation over to the federal government. These people seem to think that the insurance industry would prefer to have one set of eyes – in Washington, D.C. – looking over the industry. That’s bad for the industry, bad for consumers, and bad for America.

The threat to state-based regulation comes from several pieces of legislation that, taken together, threaten to fundamentally alter the business of insurance as we know it. Essentially, these bills and regulations would confiscate the states’ ability to regulate not just health insurance but virtually any type of insurance. It’s the “Washington Knows Best” attitude that we have seen time and time again, and Americans from all walks of life should be alarmed by this power grab. 

The first bill to threaten state-based regulation was the Dodd-Frank financial reform bill, which turned two in July. Title V of the bill created the Federal Insurance Office. The FIO is the first ever federal body involved with virtually all aspects of insurance. The statute does not technically confer the power to regulate insurance on Federal Insurance Office - yet. But history counsels that it is only a matter of time before the Office begins to expand its scope and reach.

More notoriously, the Patient Protection and Affordable Care Act (PPACA) mandated the insurance exchanges that have been the subject of heated debate. These exchanges, though they would be regulated by the individual states, would have to comply with federal rules and regulations and would be subject to federal fines and penalties for failure to comply. Any claim, then, that the federal government has not effectively usurped the regulation of health insurance, is illusory.

The broad consensus is that federal usurpation of state regulatory functions will result in higher premiums and decreased access to healthcare for Americans. Small and mid-sized insurers, unable to compete within the strict confines of the federal mandate, will be forced to exit the healthcare market. Consumers could be left with a small number of gigantic health insurers, wise in the ways of Washington, rubbing elbows with the elected representatives that effectively gave them the keys to the castle.

Perhaps this is what Nancy Pelosi meant when she said we would have to pass the Affordable Care Act to find out what was in it.

Simply put, any increase in insurance coverage of any kind has to be paid for by someone. If not paid for by the additional insureds that would allegedly result from federal regulation, these increases in cost will be borne by taxpayers, either state or federal level, or both. Moreover, artificially limiting what providers can charge for services will limit access to insurance across the board. Washington’s fundamental misunderstanding of these very basic concepts is ample evidence that turning over insurance regulation to the federal government would be a very, very bad idea.

The states have proven that they have the ability to provide sound, competent, and effective regulation of the insurance industry. On the other hand, we are reminded on a daily basis that Washington is having a tough time managing their current responsibilities. So rather than implementing radical structural change, and caving in to the ideological whims of the politicians in Washington, let’s support and strengthen our current system of insurance regulation. Because, quite simply, it works.

Brockmeier is vice president, policy and regulatory affairs for SABIR (States Alliance for Balanced Insurance Regulation. 


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