Friday, September 11, 2009

Health Care Reform Meets Financial Reform

I. Health Care Reform - and Insurance

In response to President Obama's Health Care Reform address this week to a joint session of Congress, the Cato Institute recommended that, in order to help achieve the goal of cost control in comprehensive health care, "(p)eople should be allowed to purchase health insurance across state lines," noting that "(o)ne study estimated that that adjustment alone could cover 17 million uninsured Americans without costing taxpayers a dime."

Unfortunately, the insurance industry is regulated on a State level, so such across-state-lines purchase of health insurance is currently not possible.

II. Financial Reform - and Insurance

As I mentioned recently in the first of a four part Financial Reform legislative review series, State regulation of insurance companies makes regulatory oversight very difficult. That difficulty in regulating this industry contributed in large part to the financial meltdown that began last year, and continues today.

III. Health Care Reform Meets Financial Reform - with Insurance

Insurance regulation is again brought to the forefront as we discuss means to achieving bi-partisan support for the adoption of comprehensive health care reform in the United States, just as it was when financial regulation was being discussed. And, as this reemerges, we find Morgan Stanley CEO John Mack, who guided that institution through the recent financial meltdown, saying:

"I'm somewhat disappointed that we've lost a little of the steam about getting financial reform. We do need system-risk management." Risk management, by the way, is just another way of saying 'insurance.'

These are complex times. There are complex domestic issues that require consideration on many fronts.

IV. Can We Do More Than One Thing At a Time?

It is not appropriate to say, "Since we've avoided the seizing up of the financial markets, now we can concentrate on health care." We cannot discuss the health care without discussing the insurance industry - and a large part of financial meltdown involved abuses from industry.

To date, no financial regulation reform has passed. Every US woman and man has a stake in this. It was with $180 billion of your money that insurance giant American International Group ("AIG") was bailed out, after having issued innumerable credit default swaps. What were those? They were unregulated promises by AIG to guarantee mortgage payments - for which they had no way of paying when the mortgages defaulted. In other words, AIG (and many others) collected fees for promises they made, but could not keep.

Thus, the insurance industry is at the heart of both the financial crisis and the health care debate. We must accept that both are critical components of our economic survival.

I have heard no compelling argument for keeping the insurance industry regulated at the State level. That is too complex from a regulatory perspective, and non-competitive from a health insurance perspective. Both sides of the political aisle seem to agree on that.

V. What Action Can You Take?

First, become acquainted with the issues. The administration's financial reform proposal is referenced and discussed at the link provided above in Section II. Whatever your opinion with respect to the version of health care legislation you support, it is likely, unless you own or lobby for an insurance company, that you support the free market competition that will result from the ability to purchase health insurance across state lines.

If you refer to Open Secrets, a non-partisan group referenced recently in an article by the Wall St. Journal you will see that the two top industries spending the highest number of lobbying dollars to influence legislation are:

  • Finance, Insurance & Real Estate $3.7 billion
  • Health $3.55 billion

Remember that your Congressional representatives work for you, not lobbyists, and that it is you who pays for their health insurance, which is likely far superior to yours. To voice your opinion on Federal regulation of the insurance industry, here is a list of your representatives, with their email addresses

As always, your comments and suggestions are most welcome.


  1. Hey Kitty,

    I too wondered why Obama is not supporting crossing state lines to get insurance. But as far as regulations go, I know here in NYS that some financial institutions such as the insurance industry have protections for consumers that other states don't. I am secure that my investments from these companies offer protections if they should go under. However I am not sure if that same protection extends to health coverage.

    My niece gets insurance from her husband's company. She liked their old coverage better and as a result had to change some doctors and make financial arrangements with the doctors she wanted to keep. However, if anything were to happen to her or her family, she would not be able to get medical help outside of her state. It only covers within the state when she comes up for a visit, and her baby gets sick, she's screwed. Of course I can tell her to get a good travel insurance policy.

    Let's face it, if she needed an operation that a NY hospital or doctor has had great success with, she would be denied that opportunity. I don't think that's fair.

    What one specific regulation would you like to see happen now?

    Hope all is well!

  2. Insurance reform, both as regards financial regulation requirement for Federal oversight, and intra-state purchase of health policies in health care reform.
    Thanks for your comment, Carol. Always thought-provoking and insightful.