Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare

Politics / Healthcare Sector Mar 23, 2017 - 12:17 PM GMT

By: John_Mauldin

Politics

BY PATRICK WATSON : Congress has a new healthcare plan to replace Obamacare. It may go nowhere since many Republicans aren’t happy with it… and the problems it tries to solve will remain.

Worse, anything that gets past the House and Senate may not matter if insurers refuse to play in 2018. The big ones haven’t committed yet.


If the new plan doesn’t fly and Obamacare collapses—as seems likely and which I’ve written about before—what’s Plan C?

President Trump listed several ideas in his speech to Congress last week. Among them was this:

The time has come to give Americans the freedom to purchase health insurance across state lines—which will create a truly competitive national marketplace that will bring costs way down and provide far better care.

That sounds practical and conservativehe. Just reduce regulations, and the free market will provide.

Often, that’s true. This time, it’s not.

To find out what the problem is, look no further than a deal Citibank made with South Dakota 37 years ago.

Credit Card Loophole 

When you read the fine print on one of your credit cards, you’ll likely see the issuer is a bank in South Dakota. It might be Delaware or Nevada, but probably South Dakota.

Why are the big banks issuing credit cards through South Dakota subsidiaries?

Back in 1980, with both inflation and interest rates at double-digit levels, banks were getting squeezed on credit card loans. State usury laws capped the interest rates they could charge borrowers, but not the banks’ own cost of funds.

Legendary Citibank Chairman Walter Wriston found a loophole.

A 1978 Supreme Court ruling said banks could set consumer loan interest rates based on the state in which the bank was located, instead of the borrower’s state.

Wriston had been asking New York legislators to raise the usury limit so New York-based Citi could charge higher rates nationwide.

When they refused, he looked for friendlier politicians… and found them in South Dakota.

That’s why your credit cards come from South Dakota. Citibank literally picked its own regulator and wrote its own law. Delaware and Nevada later made similar moves, but South Dakota was first.

The result wasn’t all bad. Today, credit cards are widely available in every state. Your interest rate may be higher and your spending limit lower if you have poor credit, but you can probably get a card.

If you think enabling more Americans to take on more debt is a good idea, we have the perfect system to do it. But what we don’t have is competition between states.

In theory, banks in any state can issue credit cards. But good luck getting one that isn’t from South Dakota, Delaware, or Nevada. Those are the choices the banks give us.

Separate Risk Pools 

A state-based national market for credit cards isn’t exactly the same as one for health insurance, but it’s similar in some ways.

Instead of usury limits, insurance companies face state laws mandating certain benefits that raise costs and reduce profits. It’s one reason health insurance premiums are higher in some states.

So if we let insurers sell health coverage across state lines, people can bypass all that and buy in a state whose insurers best suit their needs. Sounds great, right?

The problem is that health insurers will likely do what the banks do with credit cards: congregate in whichever state lets them do what they want—which is to insure only healthy people.

The result, within a couple of years, will be separated risk pools. Young, healthy consumers will buy stripped-down, low-priced policies from states that allow them, while older, sicker people all cluster in the few states willing to cover them at a reasonable cost—if any will.

Sound familiar? Something like that is why Obamacare isn’t working.

This is where the credit card analogy breaks down. No one has to have a credit card. You won’t die without one. But everyone will get sick or have an accident sooner or later.

There’s another problem: Providing health insurance isn’t as simple as just mailing someone a card and billing them every month. The insurer has to deliver care locally, wherever the customer lives. Building hospital and doctor networks are expensive.

Five states—Georgia, Kentucky, Maine, Rhode Island, and Wyoming—already did what President Trump suggests. They’ve opened their borders to insurers from other states.

Has it worked? Have insurers from other states rushed into these wide-open markets?

No, they haven’t. So erasing the state lines may not be as helpful as proponents think.

Insurance ≠ Care

Politicians choose their words carefully when they talk about this. They’ll often say everyone should have “access to health insurance.” Sounds nice, but it misses a few things.

Access to health insurance is not the same as access to health care. People are learning that the hard way right now.

In many parts of the country, Obamacare plans come with deductibles of $5,000 or more. So you’re covered only after you’ve spent $5,000 that you probably don’t have.

Median household income in the US is only around $56,000. Median means half of all household incomes are below that amount, and few people have an extra $5,000 sitting around. They’re insured, yes, but they can’t afford to use their insurance even if tax credits cover the premiums.

So, Obamacare isn’t the solution because it’s not working either.

But interstate insurance is no cure. At best, it will leave us with the same problems Obamacare hasn’t solved. It might even make them worse.

I wrote last year how our healthcare system suppresses job creation and undermines economic growth. We need a better solution.

We know what doesn’t work. We need to find out what does.

Subscribe to Connecting the Dots—and Get a Glimpse of the Future

We live in an era of rapid change… and only those who see and understand the shifting market, economic, and political trends can make wise investment decisions. Macroeconomic forecaster Patrick Watson spots the trends and spells what they mean every week in the free e-letter, Connecting the Dots. Subscribe now for his seasoned insight into the surprising forces driving global markets.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in