More Oversight Won’t Mean Lower Premiums

August 18th, 2010 at 12:20 pm | 7 Comments |

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A recent headline in the Washington Post described how the federal government has just spent 45 million dollars so that 45 states can “improve the review of proposed health insurance premium increases, sovaldi take action against insurers seeking unreasonable rate hikes, unhealthy and ensure consumers receive value for their premium dollars”. Sounds great. Who can be against this sort of activity?

Pennsylvania is getting its million dollars but this is the current state capacity to review health insurers rate increases:

Current Legal Authority in Pennsylvania:

Individual Market: Individual: All rates subject to the prior approval of the Commissioner; disapproval for rates determined to be excessive, inadequate, or unfairly discriminatory. 60 percent minimum loss ratio for commercial carriers.

Small Group Market: Small Group Market: All Blue Cross (or Blue Shield) and HMO products require the prior approval for all rates.  No filing requirement for commercial carriers or commercial affiliates of Blue Cross Blue Shield plans.

So why doesn’t the Pennsylvania Insurance Commissioner simply block the 20-40% rate increases in the individual and the small group market that are being proposed for this year?  The main reason is that the small insurance companies that service the healthcare insurance market for individuals and small groups realize that two components of Obamacare, allowing children to remain on their parents’ insurance plans until the children reach 26 years of age and requiring insurance companies to accept all applicants despite their underlying health status will be very expensive. The insurance commissioner can count. He must find that accepting those high cost patients before the government run health insurance exchanges are set up in 2014 requires that the insurance companies can recoup those enormous costs or they will go under.

If you then counter this argument by saying that the insurance companies are conspiring to maintain the high rates, you then need to deal with some simple logic. If one insurance company could gain market share by undercutting the price of another and still make a good profit, why wouldn’t they do so? This is particularly true in Pennsylvania where there is market dominance by a few large insurers. In fact, the large Blue Cross insurance companies have pushed for doing away with so-called medical underwriting in favor of community rating. That would kill off their small competitors.  Moreover, the 80% rule that demands that insurance companies spend at least 80% of their premium revenues on direct provision of care will also crowd out the small insurers in favor of the insurance giants.

Where does this leave us? We have now just spent 46 million dollars to upgrade state review of insurance company rates. It turns out that 31 states already have that legal power. So one could argue that we just wasted another 31 million dollars. Moreover, since the health insurance business is a low margin business and since one has to believe that there is some semblance of a market mentality by which individual companies would like to improve their market share compared to their competitors, one could also conclude that some substantial part of the proposed increase in rates is the result of “need” rather than “want”. A failed insurance company because of a deficit of reserves is a real mess (see AIG).

The problem we are facing is not an insurance problem — it is a healthcare-cost problem. Obamacare is an insurance plan. The 46 million dollars, although chump change in the current world of healthcare spending, will not do much. A good bet on one of those illegal offshore internet betting sites is that healthcare premiums will continue to rise by double digits into and through 2014. After that, it will be a tax increase as our Single Payer Plan is enacted.

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7 Comments so far ↓

  • Rockerbabe

    You seem to think that the premium rates have been stable, but that is not the case and hasn’t been for decades. Every year, I and most other Americans see a rise in our medical insurance rates, even when we do not use the benefit. Some years, my meager “merit” raise didn’t even cover the cost of the rise in my employer-provided premiums!

    I have seen copays go from $5.00 to $45.00 per MD visit; ER rates go from zero dollars to over $100.00/visit; drug copays go from $5.00 to over $100.00/rx in the last 20 years. Fewer and fewer drugs are found on the approved drug formularies, some policies have no out-of-network benefits [courtsey of the employer's lack of negiotating skills or willingness to pay the upfront cost] and fewer options in terms of clinics and hospitals on the program. Fewer and fewer doctor choices and often 3-5 month waiting periods to see a new primary care MD. And this is all before Obamacare gets going.

    No folks, the private medical insurance racket has done all of this without the urging of government for the main desire to increase profits to an obscene level. All more oversight means is that those previously unisured will be able to get insurance and will have some means by which to fight for coverage. It means sick people and their kids can no longer be put off the programs for actually getting sick. It means no more lifetime limits on care and it means no more waiting periods to receive care that one is paying for. It isn’t perfect, but at least it is a start for those of us who do not have Medicare [which I would take today if I could over this BCBS PPO mess I currently have].

    The private sector controls most of the healthcare in this country, so if you are unhappy, then take it up with your employer and the insurance company that was hired to provide you will service. Leave government out of this mess; greed is the real culprit here.

  • busboy33

    @Rockerbabe:

    “No folks, the private medical insurance racket has done all of this without the urging of government for the main desire to increase profits to an obscene level. ”

    . . . but . . . but . . . but the free market of Capitalism will make everything wonderful all on its own! Michael Savage told me “caveat emptor” meant “trust on the good hearts of mom-n-pop insurance corporations”!

    Surely that can’t be wrong?!?

  • Rockerbabe

    busboy33:
    My 35 years working in healthcare tells me that the only thing that matters anymore is the level of profits and the salary expectations of insurance executives [who by the way, do nothing to make or improve healthcare for anyone].

    We have seen the ravages of a free market with this last and ongoing economic recession. Do you think there is any good hearts in the business class executives in the banking or finance industry? Medical insurance is just a bad a racket as the other guys, but unfortunately, while one can do without a bank or a broker, doing without a doctor or clinic would be fatal.

    Michael Savage is a lying, shrill, misleading, hateful man and NO ONE should bother to listen to his radio show. Walter Cronkite he ain’t. Yes bussboy33, Michael Savage is very wrong.

  • easton

    Ah the Republican alternative: Yes, and let 50 million go uninsured and rescission and denial of services due to pre-existing conditions are but a small price to pay. Never mind the fact that reform will only add 1 to 3% more to health care (remember these people don’t just die, they go to ER’s and then not have enough to pay for treatment) and that a healthy society is a more productive society. And that the rest of the OECD nations with far more government involvement spend 9% compared to the US 16% and have as good if not better outcomes.

    Now wait, lets be honest, the real Republican reform is more HSA’s, which will benefit as a nice tax shelter for people who have 10K to put away, and allowing companies to sell across state lines thereby circumventing all state regulations (so much for states rights). And this would lead to cherry picking by states with few regulations, forcing states that have some to eliminate them, and we will be going from 50 to 75 million uninsured in no time, or they will have fly by night insurance with 10,000 deductibles provided by their employers as a “benefit”

  • busboy33

    @Rockerbabe:

    Sorry — I was trying to be a smart-ass, and it didn’t come thru to well in text form.

    I was trying to be sarcastic. I agree 100% that private for-profit insurance companies are focused on maximizing their profit to the extent they can get away with, not to the extent that it doesn’t hurt patients. I have no idea if Savage does or doesn’t believe that — I just made that part up for the whack-a-doodle snark factor.

    That’s why there are some buisnesses that are NOT best left to the free market. The nice people suffering blackouts under Enron say hello. A police force shouldn’t be chosen by the highest bidder, or the lowest bidder. And so on.
    It isn’t even a “liberal paranoia” situation . . . as you said, the for-profit health insurance industry has been demonstrably documented to put profits over healthcare. Its not the sort of thing you can say “naw, that’ll never happen” . . . just look at all the discovery form the various lawsuits, listen to the congressional tesytimony, read testimonials from first-party witnesses like you. It’s a settled fact.

    Again, sorry about the confusion. Humor in text comments is a tricky thing, and my sense of humor is questionable even under the best of circumstances.

  • busboy33

    “More Oversight Won’t Mean Lower Premiums”

    Well, less oversight sure as hell didn’t get us lower premiums . . . can’t hurt to try a different approach.

  • Oldskool

    “the health insurance business is a low margin business”

    You have to admire how insurance companies have turned that nonsense into conventional thinking. They may look like marginal businesses on paper but that’s only after expenses, which we can probably agree are intentionally huge so they look less like the Mafia than they actually are.