How to Get Congress Out of the Business of Health Insurance

Although the slogan “repeal and replace” seems to be winning the argument against the new health care law, there’s a lot of confusion about what exactly the Republicans would replace the law with.  The incoming majority leader in the House of Representatives, Eric Cantor, occasionally makes opaque statements telegraphing an intention to replace Obamacare with some kind of Obamacare-lite. So, here’s a new idea: How about getting Congress out of the business of regulating health insurance altogether? Governors and state legislators committed to defeating the new health care law can lead this effort.

One tool that they can use is the “interstate compact.” A compact is a treaty of sorts between two or more states, by which each state voluntarily gives up sovereignty to the compact. The U.S. Constitution (Article 1, section 10) addresses states’ power to enter compacts: “No State shall, without the consent of Congress. . . enter into any Agreement or Compact with another State. . . ”

Ted Cruz and Mario Loyola, lawyers at the Texas Public Policy Foundation, have recently breathed new life into the idea that states can use compacts to roll back federal overreach. When Congress consents to them, interstate compacts actually become federal law, according to Cruz and Loyola.  However, courts have also held that consent can be inferred from Congress’ acquiescence to a compact. Because they bind the states, courts have found that interstate compacts trump conflicting statutes passed by the member states, as long as the states belong to the compact in question.

One of the goals of effective health reform is health insurance that is owned by the individual and portable from job to job and state to state.  For more than half a century, Congress has failed to correct the flaw in the Internal Revenue Code that discriminates against such health insurance, and given employers monopoly control of our health dollars. Although unified in opposition to the new health care law, Congressional Republicans have never exerted a significant effort to fix this deeper problem. Indeed, they reinforced the status quo in 1996 when they collaborated with President Clinton and Democrats in Congress to pass the Health Insurance Portability and Accountability Act (HIPAA), the federal government’s first intrusion into the regulation of private health insurance.

Facing decades of congressional failure, it is high time for states to seize the initiative, and begin discussing an interstate compact for health insurance. Although the Supreme Court decided (in 1944) that insurance is subject to congressional authority under the Constitution’s interstate commerce clause, Congress responded by declining to exercise this authority and leaving insurance regulation to the states. Over the decades, states have managed successfully to regulate all lines of insurance. The federal government’s abandonment of the field has been successful: A presidential candidate campaigning on solving a national “crisis” in auto insurance would be unimaginable, even ridiculous.

Nevertheless, an effective interstate compact for health insurance faces a couple of obstacles. First, while there are examples of compacts passed without explicit Congressional approval, none is established deliberately to provoke a hostile response from the federal government. Such would be the outcome of an interstate compact attempted while ObamaCare is still the law of the land. Therefore, nobody should be supremely confident that federal courts would let such a compact survive a challenge by the Administration.

A second obstacle could arise from the complexity of building a new compact for a single line of insurance from scratch. Indeed, doing so reinforces the flawed notion that health insurance should be governed differently than other lines of insurance. Indeed, health insurance is already treated so differently than other lines of insurance that it is not really “insurance” at all. True insurance is designed to indemnify the insured financially for rare, unpredictable, catastrophically expensive events. Instead, federal laws motivate us to buy pre-paid health plans that launder almost all our health dollars through insurers’ claims-processing bureaucracies, increasing administrative costs but adding no value.

This second obstacle might be challenged by adding health insurance to the interstate compact that already exists for other lines of insurance: The Interstate Insurance Product Regulation Commission (IIPRC). According to the IIPRC:

The Compact enhances the efficiency and effectiveness of the way insurance products are filed, reviewed and approved allowing consumers to have faster access to competitive insurance products in an ever-changing global marketplace. The Compact promotes uniformity through application of national product standards embedded with strong consumer protections.

The Compact established a multi-state public entity, the Interstate Insurance Product Regulation Commission (IIPRC) which serves as an instrumentality of the Member States. The IIPRC serves as a central point of electronic filing for certain insurance products, including life insurance, annuities, disability income and long-term care insurance to develop uniform product standards, affording a high level of protection to purchasers of asset protection insurance products.

The advantages of enlarging this compact to include health insurance are easily enumerated.  First, it exists. The IIPRC enjoys solidly written legislative language; and committees for audit, finance, product standards, rulemaking, and other critical responsibilities for a successful compact.  Insurers file their forms and reports with the compact, after which they can conduct business in all the compacting states without further fuss or bother.  Second, all of this information is freely available at its website, which bears the convenient URL of www.insurancecompact.org.

Thus, state legislators and other interested parties can quickly educate themselves and identify officials employed by the compact who can advise and assist. Third, to the degree that the IIPRC would be unable to enlarge itself to accommodate health insurance, this would serve further to expose the absurdity of federal laws governing health insurance. Such exposure would increase popular demand for health reform that reduces, rather than increases, federal power.

Benign forces conspired to drive states to enter into an interstate insurance compact for a simple reason: Most insurance is the property of individuals, not our employers. People need policies they can keep when they move from state to state. Nobody who buys life insurance in Florida, and then moves to California a few years later, worries for one minute that he will lose his coverage because he has left the state in which he bought the policy. Life insurers would not sell many policies if that were to happen. The IIPRC facilitates interstate portability.

Enlarging the compact would demonstrate that states are ready, willing, and able to regulate individually owned and portable health insurance. Rather than wasting scarce legislative time trying to find the least harmful way of “implementing” the new health care law, state politicians should invest in reforms that will survive long after the law is relegated to history’s dustbin.  Including health insurance in an interstate compact would be such a reform.

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