This is something that conservatives have been begging to do for years. Even the most outgunned conservative on a talking head debate can vomit up “let people take their insurance across state lines to increase competition!” It sounds reasonable. But there’s a very good reason why it would quickly turn into a nightmare, and you can see it in the examples of Delaware and South Dakota.
Both of those states have essentially no regulations on credit card companies. When legislation passed allowing banks to issue credit cards across state lines, some states started wildly deregulating their credit card markets in a race to the bottom. South Dakota and Delaware won. And now practically all credit cards are issued from those two states.
This would be precisely what would happen to the health insurance market under these “health care choice compacts,” which could go national, based on this language. Right now, insurance companies can sell their coverage “across state lines,” they just have to be accountable to the laws of the state where they sell it. Under this plan, insurers would be allowed to ignore the regulations in the state where individuals purchase insurance, and only subject to the laws where they issue it. Insurance regulations vary widely in the states, and would do so more under this compact. Anti-government legislatures could gut insurance regulation to entice insurers into setting up their corporate HQs there. States with regulations in place might prefer to lighten their regulatory case load, in this era of budget struggles, and let some other state deal with it. The insurance exchanges would presumably put a stop to this practice, but crucially, they only have a state-level framework and not a national one.
Consumer Watchdog jumped on this today, claiming that this race to the bottom could be expanded.
Washington, D.C. — The consumer group that pioneered the most successful insurance premium regulation law in the nation, which has saved California drivers $62 billion on auto insurance rates since 1988, released a report today outlining the deep flaws in the proposed Senate Finance Committee health reforms. The report calls on Congress to adopt “prior approval” health insurance rate regulation and block insurance industry efforts to gut state consumer protection laws.
A “framework plan” released today by the so-called “Group of Six” Senators negotiating a health reform bill headed by Senator Max Baucus (D-MT) would open the door to gutting state laws. The plan would result in a “race to the bottom” in health care regulation by allowing insurance companies that participate in “health care compacts” to choose the weakest state law to govern all their policies, regardless of which state the policies are sold in. Currently, insurance companies must abide by the state laws of any state where they sell insurance. The Baucus plan resembles an industry proposal carried by Mike Enzi (R-WY) in 2006 discussed below [...]
** Loss of state benefit mandates would allow exclusion of preventive treatments and exams, prevent early diagnosis of disease and evade Patient Bill of Rights laws passed in nearly every state. Denying access to such basic preventive care makes treatment more costly to the policyholder and ultimately to taxpayers, who pick up the bill when individuals cannot pay outrageous out-of-pocket costs.
** State laws providing consumers the right to appeal a coverage denial to an independent panel of physicians, a right to a second opinion, and assistance from state regulators when coverage is denied would all be lost under the Enzi approach.
** Individual patients who currently have the ability to hold insurers financially accountable for injuries caused by the denial or delay of necessary care would lose those rights if they joined the Enzi co-op.
This is what you get when industry VPs write your laws.
...oh by the way, in case you think that some federal overseer will smooth this out, there is no federal overseer of the health insurance industry. It's all enforced at the state level, and the only thing the Baucus plan adds is a call for states to hire an ombudsman:
Ombudsman. In 2010, states would be required to establish an ombudsman office to act as a consumer advocate for those with private coverage in the individual and small group markets. Policyholders whose health insurers have rejected claims and who have exhausted internal appeals would be able to access the ombudsman office for assistance.
Yay, the states get an ombudsman! And he or she can only be tapped if individuals "exhaust internal appeals"; that is, beg their insurers to stop cheating them. And since the states will be establishing the office themselves, they'll set the budgets and choose the staff - meaning that we'll potentially be leaving enforcement of insurance regulations in Texas and South Carolina, for example, to Rick Perry and Mark Sanford. And, given this "health care choice compacts" rider, they could set the enforcement for the entire nation.
...as commenter jim bow notes, Baucus joined the filibuster of Mike Enzi's attempt to create this kind of race to the bottom in the insurance industry back in May 2006. I guess he could afford to do that back then, but a lot of insurance cash is riding on him now.