South Dakota's healthcare lesson

Allowing insurance providers to sell across state lines guarantees a bad result, for the consumer

Published February 17, 2010 11:01PM (EST)

In one tidy post today, Ezra Klein explains why the GOP proposal to allow health insurance companies to operate across state lines is a terrible idea, and why South Dakota senator Tim Johnson was the only Democrat to vote against the Credit Card Accountability, Responsibility, and Disclosure Act of 2009.

Well, actually, Klein doesn't mention Johnson by name. But he does explain why Citibank's credit card business is headquartered in South Dakota, which is the primary reason Johnson carries the industry's water. In 1978, the Supreme Court ruled that banks could charge interest rates as high as they wanted to any customer in the country, governed only by the laws of the state in which they were headquartered. New York had relatively tough usury laws, so in 1980 Citibank went shopping for a new headquarters.

According to the recollection of South Dakota's governor, Bill Janklow, after the bank convinced him a change in the laws would bring jobs to the state, Citibank drafted a law revoking usury limits and the legislature passed it in within 24 hours. Citibank promptly relocated its credit card business. The move set off a chain reaction, as other states strove to duplicate South Dakota's success by promptly getting rid of their own usury laws.

The same kind of chain reaction, argues Klein, would take place if Congress allowed health insurers to sell across state lines. Insurers would cluster in states with minimal regulation and with predictable results, according to an analysis conducted by the Congressional Budget Office in 2005.


The legislation "would reduce the price of individual health insurance coverage for people expected to have relatively low health care costs, while increasing the price of coverage for those expected to have relatively high health care costs," CBO said. "Therefore, CBO expects that there would be an increase in the number of relatively healthy individuals, and a decrease in the number of individuals expected to have relatively high cost, who buy individual coverage."

That is to say, the legislation would not change the number of insured Americans or save much money, but it would make insurance more expensive for the sick and cheaper for the healthy, and lead to more healthy people with insurance and fewer sick people with insurance. It's a great proposal if you don't ever plan to be sick, and if you don't mind finding out that your insurer doesn't cover your illness. And it's the Republican plan for health-care reform.

(Note: While researching this post after reading Klein, I discovered that LaRae Meadows, an OpenSalon blogger, published almost exactly the same enlightening information back in September. Nice work!)

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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