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Over Regulating Health Insurance & The Law of Unintended Consequences – Pacific Research Institute

Over Regulating Health Insurance & The Law of Unintended Consequences

I have written quite a few times about California’s regulatory adventurism that has made it impossible for health insurers to assess and price health risks in the market for individual health insurance, despite the fact that it is legal to do so. (Although, the recently defeated California Health Care Deforminator, Model ABX1 1 would have outlawed risk-rating, thereby driving premiums up for everybody.)

California regulators recently forbad health plans from rescinding policies wherein applicants have misrepresented their health status or history, unless the plan can prove that an applicant willfully misrepresented himself. Say, for example, you suffered a head injury two months before applying, but did not disclose that on the application, and fooled the health insurer into selling you a policy with premiums set for a person in better health. When the truth comes out, you can just say that you did not realize it was important, or that you forgot about it, and the health plan is stuck with the policy in force. Obviously, this increases everybody’s premiums, because health insurers become “gun shy” when they cannot carry out their legal right to underwrite individual health policies.

Because California is a pretty competitive market, one insurer that presumably did not want to jack up premiums has undertaken a different approach, according to an article in the Los Angeles Times. Blue Cross of California has sent a letter to doctors asking them to report any suspected pre-existing conditions to Blue Cross of California when they see a patient covered by an individual policy.

Doctors are appalled that the 3rd party-payer is asking them to “spy” on applicants. I don’t blame them. But I find it hard to blame Blue Cross of California, either. After all, California’s regulators have eliminated any other way for them to faithfully estimate and price the health risks of individually-written health insurance, despite the law’s permitting it.

Many politicians would (mistakenly) abolish risk-writing in individual health insurance, but they have not achieved that yet. Until they do, regulators must allow California’s health insurers to underwrite under the protection of current law, not force them to do it through the back door, and jeopardizing the doctor-patient relationship.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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