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The Credit Card Lesson

posted by Elizabeth Warren

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. 


McCain's proposal symbolizes and advances the core objective of shareholder value fundamentalism. Like other fundamentalisms, this ideology has a single answer for every question: in this case, profits, shareholder value and winning. It is, of course, just one more version of the scorched earth program of the Republican brand. If it succeeds, McCain -- and the industry lobbyists paying him -- will have succeeded in boosting earnings and shareholder value for some insurance companies at the expense of people and families. In addition, though, they will have planted a time bomb on capitalism itself because these sorts of earnings and shareholder value props are not sustainable over the medium-to-long term -- as we see today in the single answer, shareholder fundamentalist securitization schemes that fueled illusory earning and wealth building related to mortgages, credit cards, auto sales and more.

Last point: I agree with your call for an open debate and discussion. We face a serious problem, though. Ideologues cannot participate in such discussions because (1) they are ideologues seeking to scorch the earth; and, (2) they have soaked so long in their ideology, they believe in 'truths' instead of facts.

As with all Federal one size fits all solutions it is unsustainable.
Federal Education requirements have destroyed effective education in public institutions and is an example of Federal over reaching.
Federal Heath Insurance will equally fall into the unsustainable situation even as our freedom of choice is removed for the betterment of the population (as Nazi Germany and Stalinist USSR practiced)
The current expansion of our Military across the world is unsustainable. We are not the worlds police force. More Federal over reaching outside of our borders.
Neither Republicans nor Democrats are proposing any sustainable answers. Go farther to the fringes and there is more aggressive erosion of civil liberties in one vain or another. Proposals that limit freedom of choice for the good of the state (or as usually stated here, the good of the people) are doomed to undermine and eventually kill, from the inside, this Republic. It is the repeated mistake of all the long lasting Empires. We're heading to bankruptcy.
Let me be in my own life unless I injure or cause to be injured another citizen. States "loss" of money due to my personal choices is not injury. It is an inevitable cost of government. (Tobacco companies)
For more food for thought - check out the Hardcore History podcast.

Seems like a downward spiral to me. I like that title “Reverse Robin Hood” I used a similar term here, http://www.creditslips.org/creditslips/2008/03/credit-squeeze.html#comments , when commenting in Prof. Warrens’ blog “Credit Squeeze”.

It seems that the cost of care would rise as it already does, year over year over year. What about the doctors and hospitals being paid by a insurance company governed by some other states rules? Maybe their state rules would say that they would only have to pay the doctors, hospitals, and pharmacies their particular states rate. You think doctors, dentists etc… under that regime would accept those out of state insurance providers unless they were federally mandated to do so? Maybe they would accept the insurance but would get less coverage than you would in the state that the insurance company is based. Free market right? Doctors are not forced to take a particular insurance right? What kind of “in house” networks can out of state insurance co. set up with local hospitals, doctors etc. ? Finding the right doctor “in network” is already hard enough as it is if you work for say a small to medium sized law firm or business.

I’m sure you made some good points WGC but for the life of me I can’t figure them out. I kind of got lost when Nazis’ and Stalin came into the picture. You got to forgive me, I may not be as “edumicated” as you. What is up with that “Hardcore History podcast”? Where can I find that?

I like bashing Republicans as much as the next person…well…..maybe a little more than the next but I do believe that our we can work together, its getting all of us citizens to act in agreement is the obstacle. Our elect will do our bidding! We just have to”ride” them a bit to make sure.

If all-encompassing Federal regulation is so great, why do we even bother with the trivialities of state government? Congress shall have the power to regulate interstate commerce to ensure that one state cannot mistreat another, but what each state does inside its borders should not be the province of the Federal government. If a company wishes to do business in a state, they should be required to follow THAT state's laws and rules, just like how if a United States-based company wishes to do business in another country, they are subject to that country's laws.

Enacting regulations at the national level removes the ability of a person to choose in this country. People are--though this ability is dwindling--able to move to a state whose laws they agree with, but if we strip even more power from the states and make everything "uniform," what is the difference between living in Texas, Idaho, Washington or Maine besides the state flag and weather? Government of, by and for the people requires variations at ALL levels, and my heart weeps for companies who are unable to work in such a "harsh" environment.

For a Republican to entertain such an idea when he is supposed to be for the concept of “smaller government” is pretty hypocritical. As with 05 Bankruptcy Reform, this would dramatically increase the work load on the Federal Government. State courts are not going to have the authority to interpret another states laws and regulations. It would have to be the federal courts. Article IIIs will love all the new case loads. Where else can you litigate a “breach of contract”? If ole’ John wants less federal regulation and “deregulate” the “industry”, an intensive Federal regulatory scheme will have to be drawn up which is what he is “not for”????

I know this isn’t quite on point as it is not a medical insurance issue but I think we can get the picture on what kind of issues the Federal Cir. might have.

This 5th Cir. Pub. Op. just out on the 20th, and deals with “Uninsured Motorist” coverage and what Mississippi calls “stacking”. The insurance adjusters and attorneys were not offering the proper policy limits because of their unfamiliarity with “stacking” in Mississippi.

The following quote from the case I think is semi-applicable in that it shows how diverse state laws may be when it comes to insurance and enforcing the contracts.

Essinger v. Liberty Mutual Fire Ins Co. 07-60376

“These rules, though somewhat complicated, are central components of Mississippi insurance law. The state’s intermediate court once even stated that the doctrine was part of the “deeply ingrained and strongly felt public policy” of Mississippi. Bell v. Government Employees Ins. Co., 672 So. 2d 779 (Miss. Ct.
App. 1995) (mem.) (unpub., and not precedent). Though the state’s Supreme Court has not gone as far as that, the state Court of Appeals’ fervor reveals that
stacking is a well-known and, for many practitioners and judges, a passionately protected doctrine in the state.”

Who has a choice of health insurers? It is not a free trade market. You get what you are given for most people and as it is, to enforce a policy many have to go into federal court rather than state court, which is too burdensome. I seem to recall in 2002 (?) a well-documented survey was done (Univ. of Maryland?l) showing over 45% of bankruptcies were medical related; and of those, the overwhelming majority were insured at the time. The insurer didn't pay.

Medical necessity is not released to the public. There is little anyone can do to find out if an insurer does pay when they say they will, if they even have that choice.

I'm not convinced that insurance premiums are related to the cost of medical care or the up and downs of good and bad investment markets.

The reality is that healthcare should be a fundamental right. Very few people take advantage of getting 'too much care' and right now, when someone hits 70 - unless they are a celebrity, they get no care regardless of their overall health. We've sold the voiceless down the river to supplement discounted care for others. Insurers aren't paying for anything other than a lot of golf.

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