Now hear me out as I play devil’s advocate for a second. One could argue today’s system of state-controlled insurance regulations crawls along as an inefficient, sloppy patchwork of rules and laws designed to fatten states’ coffers and provide cushy jobs to a power-happy bureaucracy that drains corporate resources, wastes money and, in the end, makes all of these products that much more expensive for the consumer.
Of course, this argument is propped up by the fact that dealing with more than 50 different regulatory agencies—each with different rules, regulations and personalities—is more than a full-time job. Entire departments of carriers across the country are tasked with dealing with changing regulations, differences in acceptable filings, state reporting, licensing for the company and for agents, along with so many other various functions and requirements each different agency demands. A broker who does business across state lines must be licensed in each one, deal with each department of insurance, pay each state’s fees—which in some cases includes a county-by-county fee—and understand and comply with each states’ regulations when signing applications (just to name a few). The same is true for a third-party administrator, an enrollment software company, or anyone in any segment of the industry. It leaves a lot less time for a broker or TPA to actually help their clients.
Because of this regulatory quilt, a carrier might be licensed in 49 states, or have a product in only 32, or have a product that covers five different conditions in 40 states and only three in four states and nine in one state—starting to sound like a Sudoku puzzle, huh? And with fewer states accepting group trusts on products it can create huge headaches.
The prevailing wisdom holds that these “minor” headaches we all must endure are worth it since the consumer benefits from state regulators who have their hometown neighbors’ interest at heart—which is all well and good in states where the commissioner is actually elected.
It’s hard to understand how denying consumers in one state the ability to cover critical illness is a benefit, but it could just as easily be argued that state-based control being able to keep their states’ consumers safe is a mythical reading of a fairy tale spun about how we’re all more attuned to our local needs than a bureaucrat in some hotel lobby bar in DC. Those who choose to believe the federal regulator is a poor arbiter believes some equally central-located—and isolated—bureaucrat in Sacramento would be better suited to decide what accident insurance a single mother of three in Los Angeles should be able to buy. It would be fair to assume the Sacramento-based government employee is no more or less capable of determining what is good or bad for Los Angeles consumers than a Beltway-based one.
Certainly there’s a strong argument for state by state regulations in various industries and parts of society. Many believe this to be true about education for instance, but in the insurance industry one federal regulator could be a better solution for the industry and the consumer. A federal department of insurance that might spring up within the commerce department would assume all the states’ responsibilities of licensing carriers and agents, approving products and every other function resting in the states would, in the end, be a much more efficient, and effective means of regulating the expansive insurance industry.
Right now, carriers are certainly involved in interstate commerce so there should be no constitutionality issues. Any fees for the various functions could certainly provide enough revenue to maintain the department, and it could be argued that few carriers would have no need to monitor and comply with 50 different departments of insurance, so it would stand to reason their costs would go down and theoretically so would the cost of insurance to the consumer.
Is this the best answer for regulating insurance in this country? Maybe. Maybe not. But it’s certainly a starting point worth discussing as we all try to figure out what the best path forward is for all of us.
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