Turning Over The Hen House To The Foxes

One thing I've been tracking in the health care debate is what would be the mechanism for enforcing insurance company regulations. Right now we have a loose state-based framework for overseeing health insurers, with no federal oversight. Under the reform bills, the feds set down some pretty strong mandates on insurers - no rescission, no denying coverage for pre-existing conditions, rates set within a certain range. But who will enforce that? Will there be a new federal bureaucracy created? Or will the states continue to dominate. In Max Baucus' Senate Finance Committee bill, at least, the answer is the latter.

Healthcare overhaul legislation moving through the Senate Finance Committee would put crucial rule-making authority in the hands of a private association of state insurance commissioners that consumer advocates fear is too closely tied to the industry.

The National Assn. of Insurance Commissioners currently writes model laws and regulations that individual states are free to accept or discard. Under the bill by Sen. Max Baucus (D-Mont.), it would craft a model rule governing "health insurance rating, issuance and marketing requirements" that would become "the new federal minimum standard without any further congressional action." States would be permitted to deviate from the standards only by appealing to the Department of Health and Human Services.

In effect, the bill would allow the group to write many of the new rules on issuing and marketing insurance to millions of uninsured Americans who would be required to purchase policies.

"The NAIC is clearly an organization that is dominated by the insurance industry," said California Lt. Gov. John Garamendi, a former state insurance commissioner.

"I think the NAIC has an important role to play. They have a lot of knowledge, but I would be concerned about giving them authority to set the rules."

The NAIC is composed of 56 public officials, insurance commissioners variously elected or appointed to their positions. They hold no open meetings. Their records do not have to be made public. They have no federal accountability and are not vulnerable to any federal sanction. And there's also this:

Much of the criticism, particularly from consumer groups, stems from the departure of top association officials for plum industry jobs.

In 2004, the president of the National Assn. of Insurance Commissioners quit midterm to head the Property & Casualty Insurers Assn. of America.

Last year, one official left to become chairman of Swiss Re America Holding Corp., a division of global reinsurance giant Swiss Re. Another left to lead the Insured Retirement Institute, a Washington-based trade group that promotes the use of insurance in retirement portfolios.

It seems really bizarre to hand off these important rulemaking functions to a closed body often criticized of being influenced by the insurance lobby, many of whose members go through the revolving door back to the industry as executives and lobbyists. This looks like regulatory capture to me. Henry Waxman's bill creates an independent rulemaking panel accountable to Congress. Sounds like a far better solution. I know these details aren't as sexy as the public option, but they are quite important. If the NAIC builds insurance regulations with giant loopholes that the industry practically writes to their advantage, we have done virtually nothing to expand access and ensure affordable health care for everyone.