The Credit Card Lesson
The effective repeal of usury laws in the US was accomplished in the quietest possible way: In 1978, the Supreme Court interpreted an century-old banking law to determine that federally-chartered banks to lend to people in other states so long as they complied with their home state's usury rate. It wasn't long until the Chairman of Citibank paid a call on the governor of South Dakota, who rammed through a new, high ceiling on interest rates. Now Citibank was free to charge whatever it wanted--and states lost the right to protect their own citizens.
The usury story is old and famliar to commercial law types, but it is taking on a new importance. It seems that John McCain wants to borrow the idea for use with insurance regulation. According to a terrific piece by Robert Gordon in Slate, Senator McCain thinks federal law should be changed so that insurance companies in one state (say, South Dakota) could sell their products in all the other states, even if those insurance products don't meet the local standards for care. In other words, just as exporting interest rates became a way to deregulate credit cards, exporting health insurance licensing can be a way to deregulate health insurance.
The regulation of health insurance often covers rules that govern whether people can be denied insurance for pre-existing conditions or whether insurance must cover certain kinds of events or treatments. In many ways, insurance regulation tries to balance the fact that an insurance contract is nearly impossible to read or understand.
The question of when regulation should be at the state level and when it should be handled federally has been around since the founding of the Republic. But changes in the past thirty years have shifted the terrain. The failure to provide minimum federal protection has combined with a state race to attract business to strip consumers of much of the protection they once had.
If people believe that deregulation is the way to go, whether it be for usury protection or insurance regulation, then let's have that discussion. We can put it to a vote. But I'm opposed to destroying any more consumer protections without making those intentions clear.