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Who are McCarron and Ferguson?

Ask anyone in the insurance industry about McCarron and Ferguson and few will be able to provide an answer. In 1945m /Congress passed the McCarron Ferguson Act which allowed states to regulate the business of insurance. It exempted insurance companies from following federal antitrust laws. The implication was that states were better suited to establish the rules affecting insurance transactions.

Since the demographics for each state sometimes differ greatly, trying to apply the same rules in each state can cause a disparity that harms the consumers. For example, when it comes to earthquake coverage, those states known for frequent quakes might have more stringent eligibility requirements. Commercial buildings might require retrofitting. In a state that rarely has any earthquakes, requiring retrofitting might be an unreasonable expense for a business. Since there are no uniform standards for retrofitting, there are no guarantees that structures won't collapse anyway.

Health insurance appears to be the most contentious of insurance issues. Claims that being able to purchase coverage across state lines to obtain better coverage at a lower cost doesn't mean much. The ultimate determiner of premium costs is claims costs. Not all doctors and hospitals charge the same. A doctor in Beverly Hills will charge more than the doctor in Oshkosh because the cost of doing business is higher. Salaries, rent, services provided fluctuate from location to location. If the premiums ramain the same for all insureds regardless of where they live, someone is subsidizing the cost for others.

Under Obamacare, actuarial statistics seem to be ignored. For example, young people tend to have fewer claims than older people. Older people tend to have 7 times the cost of claims as younger people. However, under Obamacare, the premiums for older people can only be 3 times that as for younger people. The result is that young people are subsidizing the cost for older people. Considering that younger people are just starting out in their careers and make less in salaries than older folk, this does not seem fair. It's like a double whammy against our young people.

The intent of the McCarron Ferguson Act was to keep insurance from being subject to various federal laws such as the Sherman Antitrust Act. Lawyers have put forth their arguments concerning the consitutionality of Obamacare. The Supreme Court rules that it was a tax and therefore subject to federal regulation. The upshot of all this is that there are still about 50 million people without health insurance. So the cost of putting this together might have been better spent by letting the states come up with their own solutions to providing health care.

Now most of the states have turned the exchanges over to the federal government to handle. How this will affect the health care of the consumers will be determined in the months and years to come. The economic cost to the country is greater than had been anticipated and appears to have slowed down any recovery. Maybe next time, more thought will be given to massive changes. Maybe states will be given the opportunity to help their own citizens.

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