Minnesota Governor Tim Pawlenty (R) is proposing the idea of a 50-state health insurance compact in a letter to his fellow governors. Pawlenty said such an entity would be modeled after the Interstate Insurance Product Regulation Commission. The proposed Interstate Health Insurance Compact would allow participating states to share common regulatory standards and facilitate the purchase of health insurance across state lines.

“Like life insurance, health insurance is an area that would benefit from a consistent set of standards to enable true market competition to flourish nationally,” Pawlenty wrote. “Those standards should be informed by the collective wisdom of those closest to consumers — states and their insurance regulators.”

The NAIC would have a formal role in the health care reform bill sponsored by Senate Finance Committee Chairman Max Baucus (D-Mont.). Among other provisions, the bill would give the NAIC until 2013 to establish rules for the creation of new “health care choice compacts.” The NAIC would also be involved in developing standards for implementing national health insurance plans that could be offered across state lines.

What It Means to Agents:  There is a danger in developing national standards for health care plans: that Congress, in an effort to control costs, could undermine state insurance regulation of health plans. This, in turn, could inhibit state-level innovation and encourage the adoption of the lowest possible standards. Many states currently mandate specific items be covered, such as testing for breast cancer. While eroding such mandates might slow cost increases, it could result in substandard health plans being offered across state lines that would function as back-door rationing.

October 27, 2009