BankThink

In Democrats' alternate universe, insurers could be regulated by CFPA

How would the insurance industry hold up under the scrutiny of a nationwide consumer protection regulator? If the partisan conflicts swirling around Capitol Hill continue to comingle reform issues, that question might be more than just hypothetical. Bickering over healthcare reform could be pushing Congress towards mandating a federal insurance charter.

Last week key Democrats, furious over insurers’ attempts to kill health-care reform, revived a debate over whether to subject the insurance industry to mandatory federal regulation. Such regulation is now prohibited by the McCarran-Ferguson Act, which generally gives insurers an antitrust exemption and leaves regulation in states’ hands.

But Sen. Charles Schumer, D-N.Y., and others, prompted by threats from insurers that health-care reform would lead to higher premiums, pushed for a repeal of the law. The issue was the subject of a Senate Judiciary Committee hearing on Wednesday.

“It is time to end this special status and bring true competition to the health insurance industry,” Schumer said in a press release.

V. Gerard Comizio, a partner at Paul, Hastings, Janofsky & Walker, LLP, said that would have broad implications for the reform of the financial regulatory system.

He said a repeal of the law would likely not be limited to health insurers, and could make insurance products part of the debate about clamping down on financial services.

“If the law is repealed, … another potential implication would be: it would be open season for Congress to consider whether to subject the insurance industry to the new consumer finance watchdog agency,” Comizio said.

The insurance industry for years has pushed for companies to have the option to use a federal charter, attracted to the prospect of federal preemption and only having to answer to one agency instead of 50. But a repeal of the industry’s special antitrust status could make federal oversight less attractive, Comizio said.

“It’s nice to have the option. It’s not nice to be subjected to mandatory federal regulation of insurance. This would certainly open the door to that.”

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