The Wonk Room

McCain Banks On Deregulation

In the latest edition of 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“:

[Individuals] need to be in charge of their health care dollars… I would also allow individuals to choose to purchase health insurance across state lines…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.

In fact, deregulation of the banking industry “offers a cautionary tale about a little-understood provision at the center of John McCain’s health care plan.”

Following a pair of Supreme Court decisions which deregulated the banking industry, credit card companies relocated to states with no interest rate caps and charged “what they wanted” to borrowers in states with interest rate limits. This deregulated environment allows credit card companies to “use pricing practices, like teaser rates, to attract cash-strapped families and then…double or triple those rates without notice.”

Similarly, in McCain’s national insurance marketplace, insurance companies “would have little incentive to continue doing business” under certain state rules which “require that companies issue coverage to all new customers and not set higher rates for people who are already sick”:

[Under legislation that McCain supports], insurers wouldn’t even need to pick up and move their operations; it would be enough to file some paperwork with a state insurance commissioner and pay that state’s relevant taxes…An insurer operating under Arizona law would be able to offer healthy New Yorkers a cheaper policy than an insurer working under New York law that has to price policies the same for everyone.

Ultimately, “insurance companies could sell plans across the country that deny coverage altogether to high-cost cases. Healthy “individuals, regardless of their state of residence, could move to cheaper (albeit less comprehensive) plans based in states with fewer protections. Plans based in states with more rigorous insurance regulations would be left with sicker, more expensive patients—and higher rates.”

Given the current financial crisis, McCain’s comparison would be unfortunate if it wasn’t so accurate. Indeed, allowing health insurance companies to flaunt consumer protections and sell policies from states which do not require insurers to cover cancer screenings or maternity care could lead Americans into a personal financial crisis (should they actually need medical care, they would have to pay for it out of their own pockets) that mirrors America’s current financial predicament.