By Evan Falchuk

As I have been predicting for a long time, state insurance regulators were unlikely to remain silent for long in the face of efforts to federalize major parts of state insurance regulation.  They’re talking now, and they’re  mad.

Last week, Connecticut Insurance Commissioner Thomas Sullivan testified in Congress on behalf of the National Association of Insurance Commissioners.  He said that federal regulation must not displace the current system of state regulation. Calling the proposed legislation a “regime change,” he said it would result in “redundant, overlapping responsibilities will result in policyholder confusion, market uncertainty, regulatory arbitrage and a host of other unintended consequences.”

Later, state Senator James Seward of New York, the President of the National Conference of Insurance Legislators described as “alarming” Congress’ efforts to create a federal insurance regulator.  According to Seward, the creation of a federal insurance regulator “would represent the first step down a path to federal insurance chartering—a concept that few interests outside some large banks and insurance companies endorse.”

But there’s more than just the regulatory turf battle.  In my home state of Massachusetts, there are concerns that provisions of proposed federal reform could seriously undermine the state’s landmark 2006 reforms.  It would also impose new costs on Massachusetts to fund the federal program – even though Massachusetts has succeeded in achieving nearly universal coverage.  As Senator Kerry and others said in a letter to Senate leaders:

But now, our constituents’ tax dollars will not only go to sustaining our own state programs, but will also go to states around the country that have consistently ignored the health care needs of their low-income residents, without any acknowledgement of our original investment. This is unacceptable.

The battle over federal health care reform is not just between left and right.  The battle lines run between the states and the federal government, over enormous budgets, and powerful constituencies.

To think anyone thought it was possible to deal with all of this before August 1.

By Evan Falchuk

The battle between the states and federal government begins.

Yesterday, Illinois Insurance Director Michael McRaith told an audience that state insurance regulation is “under attack,” but that the states will prevail because they “do it better.”

Following a line of reasoning I highlighted last week, McRaith suggested adding federal regulation onto the existing state system would be duplicative, burdensome and fraught with the potential for conflict.  McRaith said that insurance was such a uniquely local business that the states were best suited to regulate it.

According to McRaith, even FDR, who did more to expand the federal government’s role in the economy than perhaps any President, “never touched insurance.”  McRaith even suggested that federal involvement in the insurance business might even have implications for the economic recovery.

It’s early yet, but for what may be the first time, a new front has opened in the battle over federal health care reform.  The silence of the state regulators may be breaking.

Expect to hear more as the battle begins to brew.

By Evan Falchuk

So, last week the House and Senate Judiciary Committees reported out bills that would end the antitrust exemption health insurers currently enjoy under federal law.  The President got in on the game, too, urging that the laws be passed because these companies were operating in ways that hurt consumers.

You’d think that when it came to state insurance regulators, the game was up.  But, you would be wrong.

Thursday, according to the National Underwriter, the House Financial Services Committee voted “to totally exempt insurance companies and their products” from oversight by a proposed U.S. Consumer Financial Protection Agency.  The amendment that created the exemption was jointly introduced by a Democratic and a Republican member.

In the statements by the industry groups that supported the exemption, you can see the outlines of an argument that may yet be made by states against the federal regulation embodied in the major health insurance reform proposals.

Jimi Grande, of one of the trade associations said, exempting insurers prevents “an unnecessarily duplicative and costly regulatory scheme that would ultimately hurt the very consumers the legislation is meant to protect.”

And there’s more evidence the states are making a comeback.

All the news yesterday was that the “public option,” long thought dead, was being resurrected.  Why?  Because under the newest version states could decide keep the federal insurance company out of their state insurance markets.

The storm continues to gather, and the least-talked about battle of the reform debate continues to brew.

By Evan Falchuk

For months, Congress has been debating health care reform proposals that would have the effect of dealing a heavy blow to the system of state-by-state insurance regulation.  State governments have stood by, silently.  I’ve been wondering (here, here and here) when the states would start to raise objections.

Slowly, it’s starting to happen.  What has been a mostly overlooked factor in the health care reform debate may end up being one of the most important.

In fourteen states, legislators are trying to pass constitutional amendments that would ban health insurance mandates.  Meanwhile, a bi-partisan group of governors are objecting to provisions of the Baucus plan that would leave the cost of expanding Medicaid to the states (by contrast, the House bill provides federal money for this).  It’s an emerging trend that may reflect growing unease in state governments.

So far, most of the attention on the reform story has been focused on things like the “public option.”  But the reform proposals represent perhaps the most important change in American insurance regulation since World War 2.  Our state-by-state system has been built over the better part of a century.  Whatever the public policy rationales for this system, will it be dismantled in the course of only a few months and without objection by the regulators?

I don’t think we’ve heard the last of the state regulators.