UNCLE, CAN YOU SPARE A DIME?

NAIC panhandles for federal grants to fund health parity regulation

Congress already provided states the premium tax carrot. It is time to use

the stick in jurisdictions that refuse to regulate consistent with

                                                                                Public Law I5 of I945 or more recent federal statutes.

By Kevin P. Hennosy

Last summer, the National Association of   Insurance Commissioners (NAIC) provided documentary evidence that many of its members refuse to fund insurance regulation. So, they wrote a letter to “Uncle Sam” asking for some quick cash.

Let me be clear: This column will not indict all panhandlers, nor condemn desperate individuals who turn to begging to survive.

But this case is different. Here, a vagabond cloaks its condition with the pretense of poverty, when it possesses a more-than-adequate and readily expandible revenue stream to meet its needs. This column focuses on grifters, not beggars.

A grift

Just a little spare change, Uncle Sam? We made some bad decisions, and a little cash would help us get back on the straight and narrow. We are not going to buy alcohol! We just want to regulate the business of insurance.

Of course, the NAIC used a more professional appeal to what simply amounts to a Gucci Gulch grift.

The NAIC suggested that the federal government should provide grants to the states to pay for state-based “enforcement” actions taken under federal law. In particular, the NAIC asked for Uncle Sam’s cash to fund regulatory action by the states related to mental health parity with other forms of healthcare benefits.

According to the NAIC, “Offering federal funding would recognize that a significant investment of resources is necessary for states to undertake this complex work.” So, the association requested the creation of a grant program to fund those regulatory activities.

The June 9, 2022, letter, addressed to Senator Chris Murphy (D-Conn.), Senator Bill Cassidy (R-La.), Representative Tony Cárdenas (D-Calif.), and Representative Brian Fitzpatrick (R-Penn.), recognizes that “[b]ipartisan legislation such as S. 1962, H.R. 3753, and H.R. 7232 would provide such grants” that the NAIC wants.

The NAIC’s letter lauds several federal statutes that rely upon states for implementation of federal requirements, “including those in the Health Insurance Portability and Accountability Act, the Affordable Care Act and the Mental Health Parity and Addiction Equity Act.”

“Federal law has required parity in mental health benefits for more than a decade; states and federal agencies have made strides in enforcing the parity provisions of the Public Health Service Act,” observes the NAIC.

The only thing lacking in this near utopia of state insurance regulation is just a transfer of Uncle’s Money. As John Kander and Fred Ebb melodically phrased it: “That clinking, clanking sound, can make the world go ‘round!”

In this case, the states do not lack for money. The states lack the will.

Funding exists

The NAIC pleads poverty on the part of the states when the letter explains, “State enforcement, though, requires resources and funding that is not automatically attached to the enforcement authority granted in these federal laws.”

Let us dose our ol’ pals at the NAIC with a smidgen of reality: All state action concerning the business of insurance arises from one federal statute passed 77 years ago that includes a funding mechanism—the premium tax.

On March 9, 1945, Congress passed Public Law 15, often referred to as the McCarran-Ferguson Act. That obscure and often misinterpreted statute not only lends jurisdiction to the states to regulate insurance, but also provides a funding mechanism for the required state action through the premium tax.

All states charge a tax on insurance premiums collected in their jurisdiction. A small portion of that tax revenue pays for insurance regulation. State governments could either appropriate more of the tax revenue to regulatory purposes or raise the tax to generate more revenue and appropriate it for the complex work of regulating the business of insurance.

When Congress passed McCarran-Ferguson, in a time before the widespread use of computers in data processing, federal lawmakers assumed the states would conduct complex and burdensome work related to rate and form regulation, company and agent licensing, and in-numerable activities affirmatively policing fair trade. (They also assumed that state antitrust laws would apply to insurance.) Public Law 15 of 1945 approved of the states levying the premium tax to fund all of this “state action.”

Furthermore, without the passage of McCarran-Ferguson, insurers planned to withhold payment of the premium tax to the states because the Supreme Court found the previous year that Congress held jurisdiction for insurance.

No aspect of insurance regulation is an “unfunded mandate” from the federal government upon the states since 1945, including recently passed statutes.

Funding withheld

To any extent that the states lack resources to conduct regulatory activity, the problem rests with policy decisions made by state politicians. In short, some state jurisdictions refuse to comply with the framework constructed by Public Law 15 of 1945. Often, that means legislatures refusing funding available from the premium tax to fund state action required to meet federal regulatory standards of any kind.

As the NAIC notes in its letter, “Some states routinely review parity compliance during annual form reviews,” which is the type of affirmative regulation assumed by the drafters of the McCarran-Ferguson Act.

The NAIC observes, “Some have developed robust staff capacity for parity compliance work, but many have limited staff resources to devote to parity and may use contractors to assist in parity reviews while they also work to build staff capabilities.”

Therefore, it is possible for a state to do the work if a legislature appropriates the funds and direction. States can do the right thing.

“Federal grants will help all participating states enhance their parity compliance efforts, but the grants should recognize that states are starting from different places and should provide flexibility to all states to build upon their current enforcement efforts,” observed the NAIC.

But the NAIC seems to recognize that many legislators refuse to appropriate that funding for regulatory purposes. Legislators may oppose regulation on philosophical grounds or may want to use the premium tax revenue to fund pet projects.

Deficit of will

However, as the NAIC letter documents, states do not always do the right thing.

For example, some states let carriers ignore federal mental health parity requirements until the public complains “enough.” The NAIC letter said these states “use market conduct reviews to follow up on complaints.”

The market conduct exam approach is dependent upon the public understanding policy provisions, regulations and knowing where to complain. As the letter said, analyzing parity is “complex work” for regulators.

Imagine the daunting nature of the task faced by an individual policyholder or subscriber.

The complexity of comparing policies and provisions is a major reason the drafters of McCarran-Ferguson chose to encourage regulation rather than competition: Insurance brings complexity that makes informed consumer choice impossible. Without informed consumer choice, competition cannot work.

“A full Marmalard”

In a cinematic aside, devotees of the film Animal House will remember the following exchange between Faber College’s Dean Vernon Wormer and his lackey Greg Marmalard, president of the proto-fascist Omega House.

Dean Wormer asks, “Gregg, what’s the worst fraternity on campus?” In an evasive way, Marmalard responds: “That’d be hard to say, sir … They’re each outstanding in their own way and … .”

Using language not appropriate fora family magazine like Rough Notes, the Dean cuts off Marmalard’s weaselly answer. Both the Dean and Marmalard know that the Delta House is the worst fraternity on the Faber College campus.

The letter writers at NAIC channeled “a full Marmalard” when they wrote: “State enforcement of parity laws allows state regulators to choose the enforcement activities that will be of greatest benefit to consumers.”

In other words, if state officials decide that the greatest benefit to consumers is to not lift a finger to regulate for compliance with federal mental health parity statutes, then that jurisdiction is “outstanding in their own way.”

In some state jurisdictions, insurance carriers merely need to present a report to the insurance department stating that they comply with federal health parity requirements. In such jurisdictions, states cede regulatory authority to private entities, which the Conference Committee that agreed to McCarran-Ferguson enumerated as a prohibited activity. Outstanding!

Other states may just rely on competition to sort it out, which under the McCarran-Ferguson framework should result in immediate application of federal antitrust and FTC enforcement in that jurisdiction.

Recall jurisdiction?

Now many readers of this column may be surprised that this commentator is not supportive of the NAIC’s request for federal funds for the states. If the problem was limited to money, this column would support the grant request.

Congress approved of a more-than- adequate funding mechanism for all forms of insurance regulation in 1945. If state legislatures, governors, or individual regulators refuse to use premium tax revenue to fund effective compliance with federal health parity requirements, then why should anyone believe that those same states will use federal grant money for such regulation?

The political leadership of some states is so denigrated that they should not be trusted with their own checkbooks—let alone federal money.

For example, consider my own state of residence: Missouri. When the federal government provided money to fund response to the COVID-19 pandemic, our Governor, Mike Parson, failed to distribute the money to localities. He funded limited pandemic outreach to sections of the state where fence posts outnumber people. Some rural Missouri counties simply quit reporting COVID deaths, and the governor winked and nodded.

It was an “outstanding in their own way” approach to public health, but we do not call the state “Misery” for nothing.

If Congress decides to provide grants to the states for the purpose of funding adequate regulation of mental health parity, then it must provide strict oversight to assure that the state’s use the funds for that purpose.

The national legislature or federal courts could short-circuit the perverted process by simply enforcing the McCarran-Ferguson Act. To the extent that the business of insurance is not regulated by state law, recall the jurisdiction from the states.

Congress already provided states the premium tax carrot. It is time to use the stick in jurisdictions that refuse to regulate consistent with Public Law 15 of 1945 or more recent federal statutes.

Congress should not reward grifters.

The author

Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.