The new health care law encourages state politicians to increase their interference with health insurance premiums, an underreported aspect of Obamacare with consequences for patients and health plans alike.
Obamacare distributes federal grants that encourage states’ insurance departments to increase their power to dictate insurance premiums. States are responding by considering new laws to increase those powers, but there is no evidence that such measures reduce the growth of premiums below those in states where insurance departments wield no such power. More seriously, the future wave of political interference threatens the solvency of health plans.
Politicized rate reviews give politicians perverse incentives to blame private health plans, rather than government interference, for increasing health costs. Although they add more value than most people believe, health plans are largely pass-throughs. They pay medical claims from providers whose charges have been rocketing skyward.
In California, a recent analysis of daily inpatient charges revealed that payments from private health plans increased 159 percent from $1,954 in 2000 to $5,061 in 2009 during a time when consumer prices nationwide increased by 25 percent. The charge for a normal (non-Caesarian) childbirth went up from $3,805 to $6,424 69 percent.
Obamacare doesn’t, nor should it, give politicians control of costs that providers charge private health plans. But by subsidizing states to increase political control over health premiums, the federal law threatens to reduce the number of health plans available in any state. We already know that such laws fail to keep a lid on costs. For example, consider Massachusetts.
The Bay State’s 2006 health reform (“Romneycare”) led to Draconian limits on premium hikes, but health spending still spiraled upward. Using the power that his counterparts in many states might soon enjoy, the state’s insurance commissioner refused 235 of 274 requested rate hikes for April 2010. He demanded that plans rebate premiums that had already been paid. But medical costs in Massachusetts increased faster after the new regulations than before.
Massachusetts’ health plans are hemorrhaging cash, and a senior regulator has described the mess as a “train wreck.” In my new study, “Bailout or Bust? The Future of Private Health Plans under Obamacare,” I conclude that the state’s largest health plan, Blue Cross Blue Shield of Massachusetts (not involved in the research for the study) is likely to be insolvent by about 2016 even if the state releases its death grip. What then? Another taxpayer bailout?
Nor is there evidence that prior approval of premium increases has protected consumers from unreasonable rate hikes. My study examines data on premiums and premium-review laws for small-group premiums in 43 states in 2006 and 2008.
Of the 45 states for which premiums were available for 2008, the average rate in 2008 was slightly lower in states where government reviews, but doesn’t approve rate increases ($345 per month) versus states where rates must receive prior approval ($351).
The notion that politicians can control health costs is a conceit of the ruling class. Health costs will only decline when patients, not politicians, directly control more of our health care spending. This cannot happen until President Barack Obama’s health law is repealed. In the meantime, states have good reason to reject politicized control of insurance premiums.