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The Rough Notes Company Inc.



June 30
10:32 2017


Exploring current events in these strange times

When one is writing for a monthly magazine, the journalistic concept of a “scoop” or “breaking news” rarely comes to mind. Filing stories about current events six weeks before publication is a dangerous game for any writer, but when writing about a legislative process, the game is definitely high risk.

And then there is the issue of healthcare legislation in 2017, which is nothing short of weird.

For that reason, this column has ignored the twisted machinations of a factional Congress and compromised White House, as both entities have taken up issues related to the Affordable Care Act of 2010.

This decision is simply a matter of dealing with a condition of pure risk. Such a situation presents a set of binary outcomes: (1) maintenance of the status quo ante, which in journalism means imparting no new information; and (2) suffering loss, such as writing 1,500 words on why the House did not pass repeal legislation.

Even the time-honored journalistic rite of writing a “think piece” seems fraught with folly. Think pieces fail to report any real news, but they do allow the writer to speculate on “alternative futures.” Or, as Hunter S. Thompson’s alter ego Raoul Duke once observed: “When things turn weird, the weird turn pro.”

Nevertheless, the legislative process thus far has proved so weird and unrealistic that even a think piece would verge on science fiction. Such as, “Speaker Ryan descended from the craft with the ghost of Ayn Rand picking his pocket, and said to Senator McConnell, ‘Klaatu barada nikto.’”

That said, it is always tempting to start a column that seeks to explore and understand what is going to happen with healthcare financing. The topic touches so many lives, businesses, and political interests that reader interest should be strong.

As the filing deadline for the July edition of this magazine looms, recent polling shows public support for the ACA increasing to 60% favorable. Few subjects in the Western world garner a 60% approval rating in public polls.

Still, if pollsters or journalists visit morning coffee klatches or after-work “beer calls,” the results seem different. In particular, no one likes the concept of the “individual mandate” to buy health insurance. Generally, it is easy to find someone who has “heard” that premiums have “gone up 4 million percent” since the 2010 law went into effect “in 2009.” Others assert that “doctors have simply stopped seeing patients and turned to a life of crime.” Such observations are difficult to dispute.

Yes, a few outliers defend the ACA as a masterwork of legislation: a law of unique quality since Moses wandered down the mountain with two stone tablets. These individuals tend to speak through Twitter accounts with handles that begin “StillWithHer.” They describe the ACA as a high point in “progressive” government rather than the compromise output of a legislative meat grinder. Some of us remember that the ACA’s basic tenet—the individual mandate—arose from a proposal first advocated by the ultra-conservative Heritage Foundation.

When one is considering the ACA, a Winston Churchill quote concerning self-government comes to mind: “Democracy is the worst form of government, except for all the others.” Or remember the Yiddish admonition to “be careful what you wish for, because wishes do come true.”

Strange CHOICE

As Congress and the administration continue batting around health insurance proposals, other issues continue to receive attention.

The National Association of Insurance Commissioners (NAIC) seems to be concerned with legislation that carries the name “A Legislative Proposal to Create Hope and Opportunity for Investors, Consumers, and Entrepreneurs.” The confusing nomenclature results in the natty acronym CHOICE.

The Financial Choice Act seeks to undo the financial reforms adopted after the Panic of 2007-2008, which threw the United States and the world into the deepest recession since 1929.

This reckless aim does not bother the NAIC. The NAIC statement opines, “[W]e share the goal of providing a balanced, measured, and appropriately sized regulatory environment that allows for innovation and opportunity, while not sacrificing consumer protections.” Of course, the Financial CHOICE Act offers none of these beatitudes, but the NAIC was buttering up the sponsors.

“The Financial CHOICE Act has some promise in this regard, but improvements need to be made to ensure that it works for the insurance sector and its regulation,” continued the NAIC.

What really grates on the Kansas City-based, Delaware-chartered corporation is the provision of the act that would create an Office of the Independent Insurance Advocate.

Such an office would pose bad news for the NAIC.

Since Teddy Roosevelt’s administration and the Committee of One Hundred, state insurance commissioners and the lobbyists who pay their travel expenses have used collective action to intervene in federal policymaking. First called the National Convention of Insurance Commissioners (NCIC), then in the 1930s changing its name to the NAIC, and then in 2000 launching a new corporation under the same name, the “commissioners” have provided “expert” testimony and data to federal entities.

The NAIC has no constitutional role in setting international trade policy for the United States. Hamilton, Madison, and Jay must be spinning in their graves.

Sure, most of the time this testimony and data provided only the consensus perspectives of the insurance trade associations and major carriers, wrapped in the robes of state officials. But Congress and most administrations played along with the costume party.

That acceptance of the NAIC as a “public” voice in the political arena created a business model. The NAIC raises the vast amount of its revenue from practitioners of “the business of insurance.” That revenue stream expanded dramatically after the private incorporation. If the NAIC could no longer present itself as the expert public-interest-oriented voice on insurance matters before Congress and the federal agencies, its ability to sell itself to insurance interests for cash would diminish—or disappear.

So, from a business perspective, the NAIC can view the creation of an Office of the Independent Insurance Advocate only with the same fear and loathing with which a local coffeehouse sees the arrival of a Starbucks down the block.

So NAIC engaged in some “crazy talk.”

“For more than 150 years, states have successfully regulated the insurance sector in this country.” Well, “successfully regulated” the sector so long as one looks past numerous crises in availability, affordability, and insolvency. And then there is that sizable list of insurance commissioners who ended up in prison after being convicted of public corruption.

“Through our approach to regulation, our sector has weathered several economic downturns and crises, including the most recent financial crisis.” And of course we should consider that the most recent financial panic accelerated when “the world’s largest insurance company” suffered a financial meltdown after state regulators looked the other way for years as AIG sold insurance on bond defaults using another name for the product.

“Notwithstanding our track record, … we have witnessed significant levels of federal overreach in the insurance sector we regulate.” The NAIC’s legislative staff seems to forget that Constitutional jurisdiction over insurance remains with Congress under the Commerce Clause; therefore, the concept of overreach is laughable. The states hold only limited and contingent borrowed authority over insurance, and only so long as Congress says the states can have access to that authority. If overreach exists, the states stand accused.

The NAIC statement goes further. “Such intrusion is not only unnecessary and inefficient, but it has proven to be ineffective, has distorted the competitive landscape and threatened to undermine policyholder protection.”

Of course, the American framework for insurance public policy, as created by the McCarran-Ferguson Act of 1945, is not based on “competitive landscape.” If a competitive landscape served as the policy model, Congress simply would have allowed the application of federal antitrust law and Federal Trade Commission enforcement to the business of insurance. Congress and the Franklin Roosevelt administration understood that the complexity of the business of insurance makes informed choice impossible for consumers. Absent informed consumer choice, market competition cannot exist, so the public interest demands affirmative regulation. The McCarran-Ferguson Act lent the authority to the states to regulate the business of insurance—only to the extent that the states used that authority.

If anyone doubts that the NAIC is not just trying to avoid a competitor for political attention, the statement goes further than just attacking the Office of the Independent Insurance Advocate. The NAIC statement also attacks the Federal Insurance Office, which resides under the Treasury Department.

“Prior to the establishment of FIO, certain insurance sector participants created a mythology that Treasury’s involvement in insurance regulatory standard-setting was necessary for the U.S. to ‘speak with one voice’ and to achieve better outcomes for U.S. insurers in those processes,” howls the NAIC.

Well, at least the NAIC’s statement makes it clear that it wants to seek “better outcomes” for U.S. insurers, but once again the Delaware-chartered corporation that refuses to file financial statements with the IRS ignores the basic tenets of the Constitution. The NAIC has no constitutional role in setting international trade policy for the United States. Hamilton, Madison, and Jay must be spinning in their graves.

These are strange times.

The author

Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide Insurance Cos. and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.


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