Watch Your Toes

Immediately after this summer's meeting of the National Association of Insurance Commissioners convened in Atlanta, the NAIC announced that its CEO Therese Vaughan was stepping down, and would be replaced by Florida commissioner Kevin McCarty. McCarty immediately got to work on putting his own stamp on the NAIC, and in ways that sought either to pre-empt federal regulation or thwart federal law.

He first said that the NAIC will be more aggressive in pursuing a much-stronger international role, for example, on European-U.S. solvency supervision and other global supervisory and solvency issues, obviously in competition with, not in concert with, federal agencies mandated under the Constitution to take the lead in international initiatives.

He then announced the formation of a task force that will seek alternatives to implementation of the Patient Protection and Affordable Care Act, especially alternatives to the health exchange system, the core of the law, which is scheduled to go into effect in January 2014.

And, several months ago, McCarty complied with the request of insurance agents to reopen the Medical Loss Ratio issue. He pushed through a resolution supporting the agents on this issue, providing political cover for members of the House to renew their efforts to add an amendment to active legislation that would exempt agents from provision of the health care law.

Indeed, the leadership of the House Ways and Means Committee was preparing to include such an amendment in their version of the Prescription Drug User Fee Act (PDUFA) legislation in mid-May when they received calls from officials of the Senate Health, Education, Labor and Pension Committee that the deal on the bill was in, and the amendment was unacceptable.

And, in establishing the new working group on health care, the Health Care Reform Regulatory Alternatives (B) Working Group, Michael Consedine, Pennsylvania's insurance commissioner, was forced to deny that the group is "a forum to throw grenades at 'Obamacare,'" although that is exactly what it is.

This looks an awful lot like an effort to pick an unnecessary fight with a federal government that has no interest, nor the time, to wage such battles. The NAIC has had the opportunity and the jurisdiction, to deal with the lender-placed insurance issue for many years, but only became interested when the Feds decided to act.

Second, still unfinished is the golden effort provided by federal legislation to create a uniform clearinghouse for the proper allocation of surplus lines premiums.

Moreover, the National Flood Insurance Act, the Terrorist Risk Insurance Act and massive federal aid to American International Group, in the hundreds of billions, has made clear that the federal government is doing all it can to facilitate and support state regulation of insurance.

Unclaimed property, too, is another area where state regulators can't seem to get their act together, in fact, reopening their probes in this area virtually every decade since the 1970s.

Indeed, in acknowledging that they are preparing to regulate thrift holding companies and designate some insurance companies as systemically significant, federal regulators recently went out of their way to state to the National Underwriter that they are doing so, not on their own initiative, but because the law mandates that they do so.

Furthermore, state officials have had decades to strengthen health insurance regulation, and failed to do so. They are proposing alternatives to the healthcare law, not proactively, and even though it has been declared the law of the land.

Through establishment of this working group, only the naïve or the stupid would not admit that this new working group is aimed at providing an organized forum that right-wing opponents of the bill can use to build up opposition too legislation that has strong support from key congressional constituencies, i.e., the health insurance companies, and the pharmaceutical manufacturers, just for two. That says that despite the rhetoric, the law will be implemented, perhaps not under current deadlines, but, nonetheless implemented.

In other words, for the NAIC, the new working group is just a side show that drains resources more properly used to proactively regulate insurance companies and make them more competitive in the marketplace. But the long-term price for such action may be unwanted scrutiny of what it does, how it does it, and why. It reminds one of the ritual to newcomers to Washington, whether they legislators, staffers, new administration officials or reporters, in which they are warned, "Watch your toes."

Watch Your Toes

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