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Bob Graham is executive editor at Insurance & Financial Advisor and IFAwebnews.com.

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Congress is in a state of confusion when it comes to what role states should play in insurance regulation. On one hand, Congress wants states to make a key decision in health care reform. But on the other hand, congressional leaders want to strip states’ control of health and medical malpractice insurance. Confused?

Sen. Harry Reid hopes to foist on states whether to include a government-run health insurance plan. His plan to let states opt out of the public option proposal would resolve one of the most nettlesome issues being debated day and night in the halls of Congress by not resolving it at all. But that is what he wants. Passing the opt-out buck to states frees – and this is important – members of Congress from accountability if the implementation of a public option leads to higher premiums, fewer private insurers or worse. The insurance industry has been arguing that a public option would be devastating to consumers from Day One. But most members of Congress like the idea, because it spanks those get-rich-at-all-costs private insurers. Reid is a smart politician, who knows how to get re-elected and clearly wants to share his gift with his colleagues.

Unbeknownst to Mr. Reid, in other quarters in Congress, members want to strip state insurance regulators from controlling health insurance and medical malpractice insurance. The move punishes health insurers who had the audacity to put out a report that said reform bills would cost people more in premiums, maybe as much as $20,000 more for the typical family in the first decade. (How dare they. Lobbying on behalf of an issue — what were they thinking?) That report upset Sen. Max Baucus and other Senate Democrats, as well as President Obama, who suggested in his weekly radio and Internet address last week that taking away the exemption is worth consideration. The president’s threat coincided with hearings on the exemption.

Congress seems to be talking out of both sides of its mouth. States may be perfectly suited to decide if health care reform should include the public option, but may not be able to appropriately regulate health insurance companies. Which is it?