As the Republican Party has been delving into alchemy, for almost seven years, in its search to replace President Obama’s Affordable Health Care, it has determined that Americans need to be able to buy health insurance across state lines. And I agree completely. But, there’s more to the overall problem, than just where the insurance is sold!
Upon further consideration, however, their search also reveals certain risks in assuming that each of the 50 states already competently regulate the respective insurance operating companies doing business within their states. The regulatory problems have also become more difficult, especially as the parent companies grow more diverse–and the industry more complex.
Banks and Securities Firms are regulated by Federal Regulators, which enables them to examine, let’s say, Bank of America or Goldman Sachs, both across the nation—as well as across their various product lines. For Allstate or Nationwide, however, different state regulators examine the individual subsidiaries independently, without any coordination whatsoever—especially with regard to self-dealing among other out-of-state subsidiaries.
The idea of buying Health Insurance in Indiana or Ohio, or Homeowners in Texas versus Oklahoma, would be a simple enough change. That’s because the insurance risks, for comparable customers, would not change just because they live on one side of the state line, or the other. If Blue Cross-Blue Shield, for instance, could operate through just one, or perhaps, several subsidiaries nationwide, that would lower some of its redundant expenses, perhaps lowering the premiums, as well. But, the highest risk is at the Home Office–where the buttons are pushed!
A NY Times article, from 2009, described some issues with AIG, one of the very largest insurance companies, which operated through 71 insurance operating companies, that were spread among 19 states, and additionally in many, many foreign countries. Eventually, the Federal Reserve and the Treasury had to provide the largest bail-out in American History—some $182 billion. Otherwise, a collapse by AIG could have brought down the overall American Economy—or even worse!
AIG was playing a shell game with itself: the various operating companies were investing in each other, rather than properly diversifying their similar risks more adequately; some companies were shifting debt to other AIG subsidiaries, making it impossible for the various state regulators to ascertain their respective financial stability; and the parent company (AIG, Inc.) had engaged in “Credit Default Swaps”, the so-called “toxic assets”, whereby it guaranteed Wall Street assets valued at more than its own Net Worth.
But, the final question is: How far will the Republican Party keep searching, if in looking for a replacement for “Obamacare” (as they call it), they might have the Insurance Regulatory Environment to deal with?