Health Reform … Round 2

Filed Under (Health Care) by Nolan Miller on May 18, 2010

The next round of the health reform debate is shaping up.  While the first battle was fought in Congress, the next will be fought in various federal agencies as regulators begin to flesh out the vague provisions of the gargantuan health reform bill.   I know, you’d think that a 300,000+ word bill would be pretty specific, but many of the details, from exactly how the insurance exchanges will work to exactly how provisions aimed at “curbing insurance company abuses” will be implemented, have yet to be described.

One such provision that has gained a lot of attention following Wellpoint’s well-publicized attempts to increase premiums for some of its California customers by up to around 39 percent is aimed at preventing “unreasonable premium increases.”  Of course, exactly what is “unreasonable” is not described in the bill, which has led state and federal regulators and insurance companies to return to the fight.

Of course, the model for all of this is Massachusetts, which enacted health care reform in 2006.  Using Massachusetts as a model for national reform is interesting for several reasons.  First, Massachusetts has the highest insurance premiums in the country.  Second, in designing Massachusetts’ universal coverage program, policymakers understood that they were first going to tackle the coverage aspect of the problem, expanding insurance to more people, and then take on the cost problem.  And, while we’ve seen the results of the coverage expansion, Massachusetts hasn’t yet done anything  significant to curb costs.  Those steps they have taken (described in the article above) have yet to show a real effect on cost.  It’s like we saw Massachusetts jump down the rabbit hole and jumped down after them, not knowing if they had any idea how to get us out.

Massachusetts’ approach to “unreasonable” premium increases was apparent last month.  Out of 274 applications by insurers to increase rates, Massachusetts denied 235 of them.  According to the regulator, Massachusetts “disapproved requests when companies significantly exceeded the region’s medical inflation rate of 5.1 percent, failed to justify why varying rates were paid to different hospitals, and did not forcefully negotiate prices with providers.”  This seems like an entirely plausible reason for denying an increase.  Who knows whether the regulators were right to do so or not.  I will end with a story about my own time in Massachusetts, though.  When we moved to Massachusetts in 1999, we were surprised to find that none of the large, national auto insurers offered coverage there.  When we asked around, it turned out that because of the state’s (technically “commonwealth,” la-di-dah) strict regulation of the auto insurance industry, many of the national players decided simply to bypass Massachusetts.  

Premium controls enacted at the national level may not drive insurers out of the market.  After all, it isn’t like they can just choose to operate in another country.  However, policymakers should anticipate that clamping down on premiums directly as a means of controlling costs may ultimately be counterproductive if it reduces competition.  The solution to the cost of health care is not going to come from top-down regulation of premiums and profits, but rather from reforming the system to one where we create health more efficiently, providing greater quality using fewer resources.  And, to the extent that healthcare providers are able to do this, they’ll deserve higher profits.