In its outraged reaction to President Obama’s healthcare plan the Wall Street Journal lists several possible consequences of the provision to limit premium rate increases:
The White House wants to create another layer of review that will be able to reject any rate increase that is “unreasonable or unjustified.” Any insurer deemed guilty of such an infraction by this new bureaucracy “must lower premiums, provide rebates, or take other actions to make premiums affordable.” In other words, de facto price controls.
Insurance premiums are rising too fast; therefore, premium increases should be illegal. Q.E.D. The result of this rate-setting board will be less competition in the individual market, as insurers flee expensive states or regions, or even a cascade of bankruptcies if premiums are frozen and the cost of the care they are expected to cover continues to rise. For all the Dickensian outrage about profiteering by WellPoint and other companies, insurance is a low-margin business even for health care, and at least 85 cents of the average premium dollar, usually more, is devoted to actual health services.
It seems to me that there’s another, more likely scenario. The review board may simply find that the rate increases are justified. That’s what generally happens in state review boards. The cost control measure may end just being a figleaf, cost control on paper.
Regulatory capture. It’s not just for state insurance boards any more.
It bears repeating: insurance premiums reflect the underlying costs of the things being insured against. Rising healthcare insurance premiums reflect rising healthcare costs and an expectation that they will rise in the future. If you really want to get insurance costs under control, why not go straight to the horse’s mouth? Why not impose wage and price controls on healthcare directly? Isn’t that the endgame of this process? Why not cut to the chase?
Please don’t confuse my questions with my endorsing such an approach. I’m just trying to explore the logical implications of policy approaches. If my questions appear outrageous, it’s because wage and price controls are always outrageous, whether they’re on insurance or healthcare.
Hate to agree with Verdon, but health insurance has become a bloated monster that has very little to do with insurance anymore. I’m really not impressed with paying for other people’s massages when we should really just be pooling risk for major problems.