Credit Cards, Health Care, and McCain's Vision

Robert Gordon of Slate offers a prescription of comparison as a cure for rhetoric. While examining the health care proposals of Senator McCain, he examines a similar situation in recent history: the treatment of the credit industry in the late 1970s.

Let's start with his recap of the way that credit-card business migrated to the states that had the least regulation:

Until the late 1970s, South Dakota and Delaware didn't have an outsized share of the credit-card business. Banks had to obey the interest caps of the states where borrowers lived. So, 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.

Then in 1978, the Supreme Court said banks should follow the rate cap in their home states. This meant that as long as a credit-card company relocated to a state with a higher interest-rate limit, the company could lend to borrowers anywhere under that higher limit. Following the court's ruling, Citibank chairman Walter Wriston offered Gov. Bill Janklow a deal: If South Dakota lifted its rate cap altogether and formally invited Citibank to the state (as federal law required), the banking giant would move its credit-card operations to South Dakota—along with 400 good jobs.

The bill was introduced and passed in the space of a day. Soon after, Delaware lifted its cap, too. Voilà, South Dakota and Delaware became the hosts of most credit-card companies.

An excellent illustration of the fact that one needs to looks not only at the proposed actions to be taken, but also at the ramifications of those actions. This brings us to the Senator's statements about "allowing families to purchase insurance across state lines." Seemingly sound upon first glance, the actual repercussions bear scrutiny.

McCain argues that different states' regulations "prevent the best companies, with the best plans and lowest prices, from making their product available to any American who wants it." Although he hasn't given details, his supporters say that he favors an approach, endorsed by President Bush and championed by McCain's Arizona colleague John Shadegg, that would allow insurers to choose the state laws under which they are regulated. (I e-mailed the campaign about the specifics of McCain's approach and didn't hear back.) An insurance company that chose to be regulated under Arizona law could sell policies in New York without following New York rules. Arizona, like most states, lets companies charge what they want to people who are sick—or simply deny them coverage altogether. Under Shadegg's bill, insurers wouldn't even need to pick up and move their operations; it would be enough to file some paperwork with a state insurance commissioner and pay that state's relevant taxes.

Now the classic Libertarian argument about credit-cards would probably be that no one forced anyone to get a credit card in the first place. However, that argument is incomplete. It fails to take into account the usurious practices that tend to flourish in an environment where consumer protections and regulation are minimized to this extent.

With the individual market for health care, the libertarian argument fails on its own terms: Sick people can't get coverage they can afford. It's as though the rafts are reserved for people who already have life preservers. Americans with pre-existing conditions—cancer, asthma, diabetes, and the like—would need to pay even more than they do today. Through no fault of their own, more of them would end up without insurance. Meanwhile, insurers would improve their own profits by offering targeted policies to people with the fewest health expenses. As with the history of credit cards, it's Robin Hood in reverse. Apart from the obvious injustice, this approach could add to spiraling health costs. The sickest 10 percent of Americans are already responsible for 70 percent of the nation's health expenses. When more such Americans go uninsured, skip checkups, and land in the emergency room, they end up costing taxpayers more.

It is hardly shocking that once again we come full circle to one of the points in George C. Halvorson's book Health Care Reform Now!. Chronic conditions are the lion's share of health care expenses in the U.S. The looming financial specter of the emergency room casts a very long shadow across the health care crisis. Despite President Bush's famous remarks last July (“The immediate goal is to make sure there are more people on private insurance plans. I mean, people have access to health care in America. After all, you just go to an emergency room.”) this approach does nothing but drive overall costs upward while overextending the ER's to the point of massively increasing wait times and decreasing quality of care. Besides, when was the last time you know of someone going to the emergency room for chemotherapy?

There are many measures that can be taken to help pull our nation out of its downward spiral, but they all require careful thought and practical implementation. Both regulation and deregulation and powerful things and both have far reaching effects that will ripple across America. We need to be decisive yet act with care, especially those of us who are getting older.

Check out the original article and see what you think.

SOURCE: "Reverse Robin Hood Why is John McCain wrong on health care? Think credit cards." 05/19/08
photo courtesy of SoggyDan, used under its Creative Commons license