Obamacare encourages state politicians to increase their interference with health-insurance premiums.
In 2008 Colorado passed a law giving the Division of Insurance the power to deny premium hikes. To enhance this power, known as “prior approval,” Obamacare gave Colorado a $1 million grant last year to hire more insurance analysts to review rates.
There is no evidence, however, that such power reduces the growth of premiums below those observed in states where insurance divisions wield no such power. And the future wave of political interference threatens the solvency of health plans in Colorado and other states.
Health plans pay medical claims from providers whose charges have been rocketing skyward. Obamacare doesn’t give politicians control of fees that providers charge to private health plans nor should it. But simply imposing political control over health plans’ premiums does not keep a lid on health costs.
In Massachusetts, the 2006 health reform (“Romneycare”) led to draconian limits on premium hikes. Using the power that his Colorado counterpart received in 2008, the state’s insurance commissioner refused 235 of 274 requested rate hikes for April 2010, and demanded that plans rebate premiums that had already been paid. But medical costs in Massachusetts increased faster after the new regulations than before.
Now Massachusetts’ health plans are hemorrhaging cash, and a senior regulator has described the mess as a “train wreck.”
Suppose the increased resources and power flowing from Obamacare cause the Colorado Division of Insurance to “go rogue,” as in the Bay State.
In a new study, Bust or Bailout? The Future of Private Health Plans Under Obamacare, I model Colorado health plans’ future solvency under these conditions where government control causes health costs to increase, while premiums are kept artificially low.
Although Colorado health plans are currently actuarially sound, the simulation shows that five of the top 10 health plans (none involved in the study) would be threatened with insolvency by 2017. The Kaiser Foundation Health Plan of Colorado, largest in the state, would experience an underwriting loss as soon as 2013, and face insolvency as soon as 2015. Of course, national carriers might easily choose to exit Colorado. Aetna has already announced such a move.
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. Nineteen states were “file-and-use,” which means that health plans must submit premium increases to the insurance commissioner, but he has no power to reject them.
Twenty states required prior approvals of rate changes by the insurance department, and four were unregulated. No connection is evident between prior approval and a lower change in rates from 2006 to 2008, nor the absolute value of rates in 2008.
The average increase over the period was 8 percent for both file-and-use states and states requiring prior approval. The highest increase in the file-and-use states was 27 percent (in Virginia) and the highest in the states which required prior approval was 25 percent (in neighboring Maryland).
Of the 45 states for which premiums were available for 2008, the average rate in 2008 was very slightly lower in file-and-use states ($345 per month) versus states with prior approval ($351).
Data for the much smaller individual market is available for 29 states in 2007 and 2009. Of the 22 of the states that legislated prior approval of rate increases, four allowed file-and-use, and three were unregulated. The highest increase in the four file-and-use states was 13 percent in Texas, versus 29 percent in New York, the state requiring prior approval that experienced the highest increase.
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 spending. This cannot happen until President Obama’s health law is repealed. In the meantime, Colorado should reject politicized control of insurance premiums.