McCain's Health Care Plan Would Limit State Regulatory Authority, Leaving People Vulnerable

10/25/2008 05:12 am ET | Updated May 25, 2011

There is a firestorm going on currently regarding John McCain's health policy platform as it relates to deregulation. The Annenberg Political Fact Center at the University of Pennsylvania is claiming that the Barack Obama campaign is taking McCain's position and statements out of context portraying inaccurately his proposal and intentions.

The Factcheck position presents a useful narrative vehicle as a starting place to examine McCain's health care platform.

John McCain is calling for health insurance to be regulated at the federal, rather--under current practice--than the state level. The role of the federal government in regulating health insurance is very minimal. Insurance has typically been overseen by states.

McCain's proposals would allow health insurers to offer the same health plans throughout the nation without any or little state oversight--he does not offer any details regarding that possible division of responsibilities. Hence, someone in New Mexico will be able to choose from the same set of health plans as a resident of Vermont, something not currently possible. There are HMOs that operate in multiple states (sometimes many of them), like UnitedHealth Care and WellPoint, but they are regulated separately in each state according to each state's laws.

Factcheck is taking issue with an Obama ad, and says "The ad relies on a single phrase from a journal article under McCain's byline ... the full context reveals that McCain was referring narrowly to his proposal to allow people to purchase health insurance across state lines."

Factcheck is guilty of extrapolating from McCain's proposals just as they accuse Obama of doing, yet with minimal clarity or salience.

Here are things that Factcheck assumes:

1. That McCain's proposal is "narrow." They are adopting the position that the implementation of the proposal would be "narrow."

2. Factcheck does not have evidence that the ramifications of implementing the proposals would deal with a "narrow" part of the health system, whether basing the measure on the health system in term of persons covered, money spent, or the number of insurers operating as national vs. state health insurers. What if 30% of Americans buy the new interstate plans? 40-50-60-70-80-90? If you listen to McCain he wants everyone or thereabouts to be in plans that are federally regulated. That's not narrow.

3. Factcheck is engaging in a narrow analysis of McCain's proposals.

McCain's proposal extends beyond being represented merely by one sound bite. The test of the content of McCain's ideas are to be found within McCain's health care platform, the most fully developed explanation of his proposals--plural, there are many others beyond nationalizing health insurance.

What McCain is focusing on, that Factcheck does not recognize in its criticism of Obama's ad, is that he is not focused merely on those who would purchase national insurance products, but that the power to regulate health insurance would be stripped from the hands of states and put in federal hands. The deregulation of health insurance that McCain proposes would deregulate all health insurance (or perhaps some would be left to state regulation, but he offers no indication that that would be the case).

State regulation of commercial, fully insured health insurance consists of many things, but one of the most important is that states can require that insurers cover given treatments. For instance, health insurers do not have to cover maternity care, cancer, diabetes, heart disease--everything, unless a state or the federal government required them to do so. Much of what McCain is talking about regarding deregulation is to eliminate some unknown number or type of coverage mandates. Perhaps many. It's a common theme of those supporting reforms like his, yet you do know hear much talk about the issue--from them, at least.

The mandates have been adopted because there have been problems getting insurers to provide good coverage for various maladies and procedures.

A place to start in questioning McCain about the details of his plan is to pose questions like: Would your plan require insurers to cover...pre-natal care, childhood vaccines, cancer, diabetes, etc.? That's perhaps the most crucial issue at hand with his reform proposals. What will insurers cover?

The central issue with McCain's desire to switch to a federally-regulated health insurance system, aside from his avowed desire to deregulate--is that he does not present his envisioned regulatory scheme, but only in a few circumstances and not involving high numbers of people. So literally, what's on the table with him is a stripping of regulatory authority from the states without presenting a subsequent regulatory scheme to adopt. He does away with state regulations and will implement, as it stands now, only several regulations--in hypothetical form--relating to few people. That's the definition of deregulation: Take regulations away without implementing any or at least fewer-in-scope new ones.

If one wants to take McCain at his word, it is not to be found in a simple sentence or two in written form in one instance. He speaks about deregulating if elected President, and the lack of specificity on his part about the extent of the new regulatory system does not indicate that it will be "narrow" or "small" or "minimal." The indication he gives of his vision is to take away regulatory authority from states--that's a massive change. That's what he wants--massive change away from the powers held now by states.

A more important factor to consider rather than merely how many people would be willing buy into in-state rather than interstate plans is the extent to which the former continue to exist. As much as individuals might want to purchase state-based insurance policies--for reasons unknown and unknowable given McCain's lack of specificity, there might not be any in existence if a change is made to federal regulation, or only few. People might not deliberately seek out federally-regulated plans, but they might not have much else--if anything--to choose from.

A likely outcome of McCain's scenario is great consolidation in the health insurance industry, following past history of eliminating or greatly limiting state regulatory authority. Organizations can create and market national products that are the same everywhere, and typically that results in a large-scale national survival of the fittest scenario.

But there already is significant centralization of the health insurance market.

Minnesota's commercial health insurance industry is dominated by 3 huge HMOs: Blue Cross Blue Shield, Medica and HealthPartners. Together they control 80-85% of the market.

There is also significant market centralization by HMOs nationally and regionally, even though their plans are state-specific. WellPoint and UnitedHealth Care operate in numerous states, and the HMO market, despite being a state-by-state market structure, has seen significant consolidation in recent years. While McCain might want to see a less centralized market of insurers under his system, the already highly centralized market positions several huge HMOs to continue their predominance, making it harder for new or smaller insurers to enter or remain financially viable.

Perhaps most significant about McCain's proposal is that states already do not regulate a high percentage of hearth specify and coverage. This is particularly true for employer health plans due to a law known as the Employee Retirement Income Security Act (ERISA). ERISA was passed by Congress in 1974. As the name of the Act indicates, the emphasis was on pensions and other retirement plans. What ERISA did was nationalize regulation over most employee benefit types, the focus on retirement money stemming from pension fraud, bankruptcies, etc. But ERISA was written very broadly, and the employer health plans are regulated by it.

ERISA stipulates that states cannot regulate the role of an employer in their health benefit plan. Employers have free reign in great part as far as state regulations are concerned. This part of ERISA is why the Maryland "Wal-Mart" bill 2 years ago that would have required it and other very large employers in that state to offer health benefits. What states can do, however, is regulate commercial health insurers as they are the insurer of employer health plans, hence indirectly regulating the employer plans. But there are employer plans that do not use a commercial insurer; the employer serves as the insurer itself for their employees--assuming the financial risk that a commercial insurer would. This practice is known as "self-insurance." Because self-insurance does not involve a commercial insurer, and since states can't regulate the roles played by employers, states are not able to regulate self-insured plans, thanks to ERISA.

Self-insured plans cover approximately 35-40% of Americans. Hardly "narrow."

This means that 40% of private insurance is already "nationalized," i.e., coming under federal regulation, since employers with locations in different states can offer the same health plan in all of them, being unencumbered by state regulations. So McCain's vision to nationalize health insurance is 40% in existence right now.

There's more.

Federal government funding of medical care in Minnesota is about 30% of total health spending. That's spending that can't be regulated by the state. Federal program coverage is in the low 20+% range. So, Minnesota can only regulate coverage for something on the order of 35% of its population, the rest are already under federal regulation.

ERISA, however, akin to the McCain proposal on the table as is right now, created a regulatory vacuum. Regulatory authority was taken from the states and put in federal hands, yet federal regulations were not in place nor were they adopted. Since 1974, only a few federal laws have been passed regulating health insurance, including self-insurance. Those most known to the public are COBRA and HIPPA. McCain's proposal on the table likewise creates a regulatory vacuum.

Since McCain proposes to leave in place the employment-based health system, and he has not addressed the ERISA issues, he is only shifting about 30-35% of spending from state regulation to federal regulation. What sounds like a 100% reform of his, is only--for that part of his platform--a 35% overall reform. So will there such significant savings? I haven't seen any financial due diligence. McCain asserts great savings but offers no precedents of his type of reform and putative savings.

Does the Obama ad accurately reflect the McCain proposal? Yes, per McCain's proposal and other declaration by or on behalf of him about it. The Obama ad takes an easy sound bite to use to illustrate McCain's position. Does Factcheck accurately portray the Obama ad, the meaning of sound bite used; is their judgment of 'narrow' objective, meaningful and accurate? No and no. do they accurately portray McCain's position and intentions? No. It is based on assumptions that are counterintuitive in theory and fact to McCain's proposal, and injects non-established by evidence from McCain or anyone else, claim that the effect and/or intended effect would be "narrow."

McCain presents his vision as a massive restructuring. It will be, if implemented, because it, as proposed, will reform the health insurance regulation of, all or almost all Americans. That is not "narrow."

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