THE STORY of that woman in Illinois who bought -- or was sold -- 60 life and health insurance policies in the last three years is a dramatic demonstration of what is wrong in the insurance business. It is easy to diagnose: some agents and companies have no scruples against fleecing their customers; anything for a buck, as the old saying goes. But it is not so easy to figure out what should be done about it.
Regulation of the insurance business in this country has always been handled by the states. The federal government's traditional hands-off policy was written into law 30 years ago after the Supreme Court said it did have power to regulate large insurance companies if it wanted to. The question raised by the evidence being collected by the House Select Committee on Aging and by the growing economic power of individual insurance companies is whether the time has come for the federal government to assert the power it has foregone.
Committee Chairman Claude Pepper claims that the nation's older people are spending more than $1 billion a year on unneeded and often worthless health insurance policies. If that number is anywhere near accurate -- and we suspect it is -- some or most states are simply not policing the industry adequately. It ought to be obvious to any state regulatory agency that a company is not playing square with its customers when it pays out less than 30 cents in benefits for each dollar it collects in premiums on certain kinds of policies.Yet Mr. Pepper's committee says there are five major companies under the 30-cent figure in the medicare supplementary-insurance field and another 10 under 50 cents. Blue Cross pays out about 90 cents and Metropolitan 83 cents on the same kinds of policies.
Numbers like those reinforce the stories of high-pressure selling tactics, misrepresentation, high commissions and outright fraud that were presented to the committee. Its investigators have simply uncovered too many examples of dishonest behavior -- by individual agents and companies -- for the industry or the state-insurance commissions to claim they are the exceptions in an otherwise properly run business.
While the current trend -- which we support in principle -- is toward reducing federal regulatory efforts, the insurance industry may need just the opposite approach. If insurance companies have grown so large that they can no longer be controlled by state governments, or if the state agencies that are supposed to regulate them have been coopted, the federal government may have to move into the field to protect citizens against the avarice of some companies and agents. Once the House Committee completes its current investigation, Congress should begin to concentrate on those two possibilities.