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Gutting State Regulation of Insurance under Bush Administration's Financial Oversight "Reform"
PSN on April 3, 2008 - 9:38am
|Secretary of the Treasury Henry M. Paulson, Jr.
While the financial crisis developed over a number of years in the subprime mortgage sector, federal regulators were asleep at the wheel as greedy lenders often took advantage of working families. Worse, when states tried to step in with new state policies to tighten oversight of predatory lenders, federal officials blocked those state consumer protections, making the effects of the meltdown even worse for families.
Killing State Oversight of Insurance: Now the Bush Administration, led by Treasury Secretary Henry Paulson (pictured), has proposed a sweeping new proposal, its Blueprint for a Modernized Financial Regulatory Structure, to "reform" regulatory oversight of different financial sectors. But the proposal is little more than an industry wish list that has only tangential relationship to fixing the problems that actually led to the subprime lending disaster. Despite the fact that the insurance sector, covering everything from health insurance to disaster coverage, has been notably free of financial problems, part of the administration's proposal is the replacement of state regulation of insurance with a single federal regulator, which would likely preempt stronger consumer insurance protections at the state level. "It's no surprise that the Bush administration comes out with an exclusively pro-business proposition," said Michael McRaith, insurance director for the Illinois Department of Financial and Professional Regulation. Under the Bush plan, "[v]ery large, wealthy companies would get to choose the lesser level of regulations."
Insurance regulation has traditionally been done at the state level and this has served consumers well. States have 12,500 regulatory personnel around the country protecting consumers from financial losses and insurer insolvancy. Given the track record of federal regulators, it's unlikely a single federal regulator would match the vigilance of state regulators.
More of the Same on Deregulating Health Insurance Companies: This proposal seems to be part of the longer-term goal of the Bush Administration to gut state health insurance regulations, a goal they previously supported under what they called "Association Health Plans" that would preempt state health care laws.
Fortunately, most Congressional leaders seem skeptical of the proposal. Senate Banking Committee Chairman Chris Dodd called the administration's proposal a "wild pitch. It's not even close to the strike zone." But we can expect new attempts by industry that use federal preemption to undermine health care and other insurance standards to keep being revived under different names.