Daily News Updates - Health Insurance News

Paul Revere, but not Robin Hood, Pt.1 -- The Discovery

It’s pretty common knowledge today that John McCain is proposing a push to move toward private health insurance. One seemingly innocuous ingredient did not receive much elaboration, but was sold as a great benefit. That ingredient was the disposal of state-level health insurance regulation. Robert Gordon --- (Slate.com) posted an article that took me back to Finance 101. This little trojan had slipped by me, as I think it did most of us. Let’s give it some thought. It’s about possible ramifications of John McCain opening up the floodgates for interstate private health insurance. As corollary, Mr. Gordon poses the arcane question “Why do most of us send our credit-card bills to South Dakota or Delaware?” Interestingly, as he points out, before 1978, issuing banks in the credit card industry were all bound by state and local regulations to protect the consumer. “Banks had to obey the interest caps of the states where borrowers lived.” He explains “for example, loans to New York residents were always subject to New York's limits on interest rates. At 12 percent back then, and with high inflation, these laws sharply limited profits on credit cards.”

All this changed in 1978, when a Supreme Court ruling allowed banks to follow rate cap regulations from their own home states. Almost immediately, these issuing banks began moving their “home”s to the states with the most favorable rate caps, such as South Dakota or Delaware. Now they could charge the higher rates allowed in the states of their “new homes” for consumers that lived anywhere. What does all this have to do with health insurance?

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