HOME / jurisprudence: The law, lawyers, and the court.

Reverse Robin Hood Why is John McCain wrong on health care? Think credit cards.

By Robert GordonPosted Monday, May 19, 2008, at 4:33 PM ET

(Continued from page 1)

If enacted, this proposal would cause a shift along the lines seen in the credit-card industry. Like the Citibank of old, New York insurers would have little incentive to continue doing business under New York's laws. Insurance companies can make bigger profits by offering different policies to different people based on separate assessments of risk rather than charging everyone the same, as a state like New York requires. An insurer operating under Arizona law would be able to offer healthy New Yorkers a cheaper policy than an insurer working under New York law that has to price policies the same for everyone.

Is that a good thing or a bad thing? In the credit-card industry, there's a pretty decent argument that the old usury laws restricted access to credit, even among people who needed it and could use it well. And competition among card issuers has led to a proliferation of rewards programs—frequent-flyer miles, hotel discounts—that work nicely for people who pay their bills in full and on time. There's also a classic libertarian argument for deregulating credit cards: MasterCard never put a gun to anybody's head.

The problem is that without consumer protections, companies use pricing practices, like teaser rates, to attract cash-strapped families and then slap those families with interest rates of 35 percent or higher plus penalties of $35 a month. Rates can double or triple without notice, even if you never miss a payment. Credit-card use and bankruptcy rose together for years (until the 2005 federal bankruptcy legislation), and last year, banks made $40 billion in plastic profits. For families drowning in debt (often from health expenses, by the way), a credit card may be the only life raft—but in the memorable words of Elizabeth Warren and Amelia Tyagi, authors of The Two-Income Trap, the raft turns out to be made of cement.

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.

Share this article on Digg
Share this article on Buzz

In a national economy, there's often a good argument for standardizing rules across state lines. Smart reforms of the credit-card industry wouldn't reinstate the old regime of state regulations; they'd provide national protections against practices like raising rates for people who are paying their bills on time. In health care, federal law already sets a very low floor of protections for individuals who lose coverage. But many people don't benefit, because they don't already have coverage, don't qualify, or can't afford their new premiums. Sensible reforms in the market for individually purchased health insurance would apply New York-style rules nationally and then do more to bring down average costs: bringing small businesses into risk pools with individuals, using mandates or automatic enrollment to expand those pools, and deploying tax subsidies to make coverage more affordable.

What makes no sense is to neuter state regulations while putting nothing in their place. That will leave the sickest people, who drive the sickness of our health system, in more trouble than then are in now. Letting South Dakota regulate America's credit-card industry hasn't worked out so well. Letting Arizona do the same for health insurance would be worse.

Print This ArticlePRINTEmail to a FriendE-MAILShare This ArticleRECOMMEND...Get Slate RSS FeedsRSS
Robert Gordon is a senior fellow at the Center for American Progress Action Fund.
Photograph of John McCain by Scott Olson/Getty Images.
What did you think of this article?
Join The Fray: Our Reader Discussion Forum
POST A MESSAGE | READ MESSAGES
Everyday life in Mumbai.TODAY'S PICTURES: Everyday life in Mumbai.
Cartoonists' take on George W. Bush.TODAY'S CARTOONS: Cartoonists' take on George W. Bush.
Nobody on Line 1. TODAY'S DOONESBURY: Nobody on Line 1.
Washington Post
The Washington Post
OPINIONS
Closet Centrist
Gerson | With his cabinet picks, Obama disappoints the ideologues.
Marcus: Was Summers Right?Topic A: A Confirmation Battle?
PLUS » Milbank: Do You Smell Something?