The Stupid History of Health Insurance Regulation in the US

August 22, 2009 2:33 PM

fxgillis at the League of Ordinary Gentlementells "the stupid history of how the stupid Supreme Court and a stupid Congress wound up saddling us with such a stupid system for regulating the insurance market."

That is the reason that health insurance regulations look like this right now. This issue was brought up most recently by the McCain campaign as part of their health care plan, but there was criticism pdf that this plan would create a race to the bottom for coverage.

posted by cimbrog (9 comments total)

And yes, a national plan would bypass this problem as well.
posted by cimbrog at 2:34 PM on August 22

Blaming the Supreme Court seems a bit misplaced; as the article points out:

“Congress still has the authority, reserved in the McCarran Act, to impose Federal regulation on the insurance market whenever and however they want. All they have to do is write the law specifically to apply to the ‘business of insurance.’ All they have to do is, well, Act.”

The USSC hasn't been standing in the way since 1944, when they correctly realized that insurance companies were interfering with commerce and were subject to Federal regulation. The failure falls squarely on every Congress seated since, all of which had the opportunity to regulate but chose not to do so.
posted by Kadin2048 at 2:55 PM on August 22 [1 favorite]

This is a pretty adroit piece of economic-legal-political history. The League of Ordinary Gentlemen has been impressing the hell out of me the last couple of weeks. '

Kadin2048: The reason the SCOTUS history is so important is that it served to create a climate where 50 markets seemed ordinary and normal, so that Congress would have had to do something radical in the middle of WWII to change it.

Interestingly, the employer-based health insurance system also dates from WWII, when companies used health insurance benefits to get around salary caps. Path dependence: it's what's for dinner!
posted by anotherpanacea at 4:07 PM on August 22 [2 favorites]

Sure, sure. The fact that healtcare expenses have expanded so much in the past few years is because of a hundred+ year old supreme court ruling. That makes sense.

While the rule may be dumb, it can't be the cause of our current problems, because they are all pretty recent. Health care costs, recently, have exploded. In a way that's out of line with the rest of the world. Administrative costs are high, but they are not high for medicare. Medicare may be a federal program, but it's administrated in the same environment.

Every dollar that gets spent comes from the following entities:
*the government
*employers
*patients

And it goes to the following entities:
*doctors and nurses
*Insurance company employees
*Insurance company stockholders
*hospital and other facilities staff
*hospital and other facilities shareholders (in the case of private hospitals, like HCA)
*medical equipment makers (like betsy mccaughey's company)

So health-care reform, at a fundamental level is really about redistributing and altering the flow of funds from the second group to the first, in addition to increasing coverage (hopefully to everyone!) Any proposed reform has to explain how it would do so. The Public Option, for example cuts insurance companies out of the loop, leaving the money with the government and individuals.

Changing the laws to make things simpler for insurance companies would reduce the amount of money insurance companies had to pay in terms of paperwork, but insurance companies could do whatever they wanted with the money. They could give it to CEOs or to their shareholders. It would be up to them.
posted by delmoi at 4:10 PM on August 22 [1 favorite]

jfxgillis needs to learn that, just because you call something stupid, it doesn't actually make it stupid.
He presents no actual evidence that the current state of affairs would be improved one whit by removing the McCarran-Ferguson Act.

Myself, I'm perfectly happy with my regulators being as close to me as possible.
Isn't allowing companies to ignore state usury laws a big contributor to the outrageous interest rates a lot of people pay for credit card balances? How will allowing insurance companies to ignore local insurance regulations not lead to a similar situation?
posted by madajb at 6:15 PM on August 22

Let me fix that for you.

And it goes to the following entities:
*doctors and nurses
Doctor's office administrative staff
*Insurance company employees
*Insurance company stockholders
*Clearinghouse employees
*Clearinghouse stockholders
*Practice Management employees
*Practice Management stockholders
*hospital and other facilities staff
*hospital and other facilities shareholders (in the case of private hospitals, like HCA)
*hospital administrative staff
*medical equipment makers (like betsy mccaughey's company)

Note: At least 50%, and probably closer to 70%, of the costs associated with the groups I've added are because of the fact that there are well over one thousand payers in the US Healthcare system.
posted by eriko at 6:59 PM on August 22 [1 favorite]

Via Global Guerrillas

"Health insurance is already becoming unaffordable for families and businesses, with premium inflation outpacing wage increases. Between 1999 and 2008, employer family health insurance premiums rose by 119 percent, while the median family income rose by less than 30 percent. As a result, average family premiums for group policies have risen from 11 percent to 18 percent of median family income. And if Congress fails to pass health reforms that control health care costs, premiums are projected to rise to 24 percent of a family's income by 2020. (Click on image at right to open chart.) In any economic climate, but especially in today’s recession,most families cannot afford to devote a fourth of their income to insurance coverage, nor can businesses afford their share of insurance premiums in addition to raises for"

And via Joe Bageant
"Consequently, they are incapable of asking themselves a simple question: If insurance corporation profits are one third of the cost of healthcare, and all insurance corporations do is deliver our money to healthcare providers for us (or actually, do everything in their power to keep the money for themselves), why do we need insurance companies at all?"

Looks to me like the reason for a lack of reform is the firms making the money have no reason to want to change that large cash flow.
posted by rough ashlar at 9:43 PM on August 22

If insurance corporation profits are one third of the cost of healthcare

Certainly an interesting hypothetical, but I think it might be more useful to begin from reality, in which the insurance company profits aren't more than a few percent of total healthcare expenses.

A lot of money is getting wasted, but it's not as simple as it all being passed through to the shareholders of the insurance companies. The system bleeds money at virtually every stage: you've got doctors making far more money than their peers in other countries, for-profit hospitals, pharmaceutical and medical-device manufacturers who gouge like crazy, ridiculous amounts of administrative overhead...the whole thing leaks like a sieve.

Sure, the net profits of insurance companies total up to big numbers, in the tens of billions of dollars, but total healthcare expenses are multiple trilions—there's several orders of magnitude difference. Even if you could recover all the profits before they got passed along to investors, it's drops in the bucket: we'd still be screwed and facing exorbitantly high costs.

Pointing to corporate profits seems suspiciously like a red herring, meant to get everyone looking at the ugliest pig while ignoring everyone else with their snouts in the trough.
posted by Kadin2048 at 11:02 PM on August 22 [1 favorite]

Good on you, Kadin2048.
posted by anotherpanacea at 8:00 AM on August 23