WASHINGTON -- President Obama will propose on Monday giving the federal government new power to block excessive rate increases by health insurance companies, as he rolls out comprehensive legislation to revamp the nation's health care system, White House officials said Sunday.
...
By focusing on the effort to tighten regulation of insurance costs, a new element not included in either the House or Senate bills, Mr. Obama is seizing on outrage over recent premium increases of up to 39 percent announced by Anthem Blue Cross of California and moving to portray the Democrats' health overhaul as a way to protect Americans from profiteering insurers.
Ok, 39 percent is a lot. I'll give you that. So my first question would be whether there is a reason for that.
Anthem, California's largest for-profit insurer, has announced premium increases for nearly 700,000 customers, citing the soaring costs of medical care and the effects of a weak economy in which many younger and healthier people are dropping insurance. But the increases, far outpacing the rate of medical inflation, led to outrage among officials in Sacramento and Washington.
Less disposable income leading to a worsening of the adverse selection problem? I'd like to see the numbers on that. While I'm a little skeptical, I'll admit that I don't know enough of the details. Let's go on...
The president's bill would grant the federal health and human services secretary new authority to review, and to block, premium increases by private insurers, potentially superseding state insurance regulators. The bill would create a new Health Insurance Rate Authority, made up of health industry experts that would issue an annual report setting the parameters for reasonable rate increases based on conditions in the market.
Hmmm...
The legislation would call on the secretary of health and human services to work with state regulators to develop an annual review of rate increases, and if increases are deemed "unjustified" the secretary or the state could block the increase, order the insurer to change it, or even issue a rebate to beneficiaries.
The new rate board would be composed of seven members, including consumer representatives, an insurance industry representative, a physician and other experts like health economists and actuaries, the White House said. The board's annual report would offer guidance to the public and states on whether rate increases should be approved.
Seven (politically appointed) people in charge of deciding how much you'll pay for health insurance. Of course, they will be infinitely wise, incorruptible, and above political influence, right? Yeah, right.
[Senator Dianne] Feinstein said that only 25 states allowed their insurance commissioners to regulate rates and that California was not one of them. "For the life of me, I am not sure why not," she said. "The time has come for the secretary of health and human services to step into this."
I'm not a huge fan of government regulation, but in our country we have come to a basic agreement that insurance should be regulated by the states. This is an imperfect system. Some states will do it well; others will not. But the same is true of roads and schools, which have also been left in their care. So half of the states have figured out how to take care of this themselves, and we need the federal government to be the nanny for the ones that don't have the courage to do it.
Now the fact that Anthem is raising their rates 39 percent suggests to me that Anthem may have caught onto the fact that California's regulatory environment is lax. If there was a stronger insurance regulator, perhaps they would be a bit less aggressive. Perhaps. I'm trying to give the benefit of the doubt here. Ms. Feinstein, I agree with you that for the life of me, I'm not sure why California hasn't done it since it looks like it might be a problem. But with all due respect, that's California's problem.
On a related note,
Leaders of the National Governors Association meeting in Washington on Sunday expressed frustration that they had been largely shut out of negotiations over the future of the health care system, even though they would be responsible for carrying out many of the changes envisioned by federal officials. They said they wanted more of a voice in shaping those changes.
Indeed. Nervous about turning your state's regulatory power over to seven federal appointees? Come on... what could go wrong?
Mankiw calls this an example of price controls. He's right, to a point. Our system of health insurance, such as it is, really stinks. The fact that it really is 50 different statewide markets with different regulations is bad enough. Tying health care to employment is another problem. There are plenty of things that could be done to improve the system.
This isn't one of them.
Selling insurance isn't like selling apples. There are a lot of variables to consider. Suppose companies are forced to accept lower rate increases. There are dozens of ways that they could respond to reduce coverage. How is that seven member committee going to keep up with that for all the insurance companies in the U.S.? Are they going to tell them what they have to cover? What the deductibles can be? Hardly realistic, is it? I mean, that sounds like that seven member panel would be more ambitious than whatever bureaucratic apparatus would run Obama's health plan.
Actually, they would probably just publish guidelines as to what is acceptable, but how detailed could those guidelines be? If a company wanted to go outside those guidelines would they have to appeal?
The mind reels.
There is no way that this would end well.
To be continued...
The health insurance industry is collapsing faster than I expected. We knew before that health care costs were rising faster than wages with it projected to eventually eat up the bulk of spending both private and government. That's why this is such a big issue. Insurance companies know that unless something is done, business as usual will make health care unaffordable to most and the public might do something radical like ask for medicare for all.. Not good for the long run health of the private health insurance companies. Pun intended.
But the collapse is happening faster than I predicted. Anheim said that the insurance rate hikes in California is not due to increased profits, and they might be right. According to Krugman 800,000 in California buy their health insurance on the market place, rather than from their employer. As people find it unaffordable due to the recession, they drop their coverage. Mostly it is the healthy people who will take their chances without health insurance. The ill keep their coverage, but are now being subsidized by less healthy people. Thus rates go up, more healthy people find it unaffordable, and that's what they call an insurance death spiral.
I found this image from National Geographic to illustrate just extremely badly designed our current system is compared to other countries: http://blogs.ngm.com/.a/6a00e0098226918833012876a6070f970c-800wi
There are a lot of low hanging fruits for savings costs AND improving quality. It's just that our political system is completely dysfunctional.