The appalling ignorance in Washington about insurance issues is underscored by President Obama’s sudden interest in having federal oversight of health insurance premiums. Once again, these people do not have the slightest idea of what they are doing. One company (WellPoint) issues rates that Obama thinks are too high. But his reaction is based on nothing. He has no idea if the rates are too high, too low, or just right. It is a political temper tantrum — period.
So he wants federal oversight and looks for excuses to justify his position. One reason cited by Kaiser Health News is that, “more than half the states allow insurers to implement rate increases without first obtaining state approval.” Well, yes they do. But that doesn’t mean there is no oversight. There are two approaches to rate regulation. One is “Prior Approval,” whereby the regulator has to approve the new rate ahead of time. The other is “File and Use,” whereby the rate goes into effect UNLESS it is denied by the regulator. In either case the regulator has the power to deny a rate increase. The only difference is what happens if the regulator takes no action. In one case it defaults to denial and in the other case it defaults to approval.
As I said, this is public policy driven solely by crass politics. The Kaiser story says, “In the past two weeks, Obama administration officials have tried to build public outrage over recent insurance rate hikes in the individual health insurance market, especially a 39 percent increase sought by Anthem Blue Cross of California, the largest for-profit health insurer in that state.” They have no interest in why these rates went up 39%, they just want to use it to inflame public opinion.
The New York Times reports, “Mr. Obama is seizing on outrage over recent premium increases of up to 39 percent.” So, Kaiser says Obama has “tried to build public outrage,” and then the NY Times says he is “seizing” on the outrage he has built. The Times goes on to explain, “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. Officials said they envisioned the provision taking effect immediately after the health care bill is signed into law.”
Also in the New York Times, WellPoint CEO Angela Braly explains that “higher premiums were justified by soaring medical costs and added that, “health care providers were charging more to the private sector, “including our members,” because payments from Medicare and Medicaid did not fully cover providers’ costs.” She also explained that many younger and healthier enrollees have dropped their coverage because of the recession. They have higher priorities when finances are tight.
Importantly, she noted that premiums in New York are double what they are in California because of New York’s guaranteed issue and community rating requirements – which Congress wants to apply to the entire country.
And John Graham of the Pacific Research Institute notes that while some people in California are getting a 39% premium increase others are getting a 20% cut. It is curious how we hear about one but not the other.
Look, folks, this is all about as dumb as can be. The fact is that insurance companies set rates based on what they pay out. There is no other way to do it. Sure administrative costs may be too high and that is part of the reason to support HSAs – it is far more efficient to minimize the amount of services that go through an insurance mechanism. But even if admin costs could somehow be slashed to zero, the rate increases from underlying costs would still be substantial.
Adding federal oversight is nothing but a political stunt. How is the Secretary of HHS supposed to know anything at all about local market conditions in San Berdino, California? If she denies a rate increase and the company goes out of business as a result, who will suffer? Not her. It will be the policyholders.
When you add in the McCarran-Ferguson repeal, things get really wacky. Currently the states have very elaborate and time-tested ways to deal with insolvent insurance companies. They go onto receivorship and the state guaranty fund kicks in to cushion the blow for policyholders. If we have federal regulation of insurance companies an insolvent company will be able to file for bankruptcy in federal court (they cannot do that currently.) That means the policyholders will get no relief whatsoever.
The gross incompetence coming out of Washington these days is simply stunning.