OPINION: McCain's Regulation Talk Sounds Subprime

John Fout

You can find more stories like this in our Political Pulse section.

Sen. John McCain (R., Ariz.) has gone out of his way this week to demand oversight of the greedy Wall Street bankers and lobbyists who created our current financial crisis. There's one small problem with his loud cries: He doesn't believe in regulation.

Not only does he believe in massive deregulation of the banking system -- a cause of the current crisis -- he also wants to spread the "innovation in banking" over the last decade to the health care industry. His "subprime" approach to banking and health care can't be trusted.

In the most recent issue of Contingencies, a publication of the American Academies of Actuaries, McCain outlined his goals for the American health care system. He wrote:

"I would also allow individuals to choose to purchase health insurance across state lines, when they can find more affordable and attractive products elsewhere that they prefer. Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation."

It appears that not only does he not understand the banking system, but he also has plans to reform -- read wreck -- our health care system.

Yes, the major innovation on Wall Street has been incredible lack of oversight and regulation. In a recent column for TheStreet.com, Doug Kass describes the consequences under-regulation and over compensation on Wall Street:

"A general lack of regulatory scrutiny and enforcement, the absence of risk controls and a continuum of reckless management decisions at the world's leading financial institutions (banks, brokers, hedge funds, private equity, etc.) have combined to create a Black Swan event, which has resulted in a credit market gone amok and a shadow banking system often under the radar of regulators."

In the last week, we have learned exactly how much the lack of regulation in banking could cost us -- as much as $700 billion, not including actions already taken by the Federal Reserve.

The bailout offers a new meaning for "personal responsibility" -- making every tax payer personally responsible.

Yet, this deregulated structure is exactly what McCain proposes for health care. He has proposed a radical departure from the current system as we know it. He wants to end the taxpayer subsidy for employer insurance, end state regulation of health care and throw health insurance into the hands of a free market -- just like deregulation offered to banking. In its place, he suggests a taxpayer subsidy of $5,000 for a family and $2,500 for an individual.

Unfortunately, McCain's subsidy wouldn't come close to covering personal health care costs. A new study by the Kaiser Health Care Foundation shows that health care costs for 2007 continued to rise at a rate faster than inflation: 5%. The current cost of family coverage is $12,680 and $4,704 for an individual.

Another independent study published on healthaffairs.org describes exactly what a McCain health care world would look like:

"At its heart, the system he envisions is one in which many more -- perhaps most -- insured Americans would buy health insurance and health services in a national, relatively unregulated, competitive market, either on their own or as members of fluid, voluntary associations, such as churches or clubs."

Perhaps the biggest problem faced by consumers under such a health plan would be the loss of state regulations. The aforementioned study said:

"In a national market where state licenses are not required, insurers will charter in places where regulations are scarce--much like credit card companies do today. As a result, people guaranteed basic benefits today would find those benefits eliminated under the McCain plan. People in most states would lose access to procedural protections, such as requirements that disputed decisions by managed care plans be subject to external review."

The study concludes that McCain's plan would offer minimal immediate gains in the number of Americans covered and result in a greater number of uninsured in five years' time.

That's the dirty secret of deregulating important industries such as banking and health care -- sometimes it takes five or 10 years to figure out how bad a mistake was made -- in the case of the credit crisis, close to a trillion-dollar mistake.

Perhaps, however, one thing can be learned from the banking deregulation debacle: McCain can't be trusted to regulate either the banking or health care system.

---