Tuesday, April 13, 2010

qotd: Healthcare overhaul won't stop premium increases

Los Angeles Times
April 13, 2010
Healthcare overhaul won't stop premium increases
By Noam N. Levey

Public outrage over double-digit rate hikes for health insurance may have helped push President Obama's healthcare overhaul across the finish line, but the new law does not give regulators the power to block similar increases in the future.

And now, with some major companies already moving to boost premiums and others poised to follow suit, millions of Americans may feel an unexpected jolt in the pocketbook.

At least in the short term, regulators will be able to do little more than require insurers to publicly explain why they want to raise rates. Consumer advocates think that will not be an effective deterrent against premium increases such as the 39% hike that Anthem Blue Cross sent some California customers last year.

"It is a very big loophole in health reform," Sen. Dianne Feinstein (D-Calif.) said. Feinstein and Rep. Jan Schakowsky (D-Ill.) are pushing legislation to expand federal and state authority to prevent insurance companies from boosting rates excessively.

But more intensive oversight would not begin until 2014, when states set up new regulated insurance markets, or exchanges, where consumers who do not get insurance at work would shop for coverage. 

The healthcare bill allows regulators to ban insurers from the exchanges if their rates are deemed unjustified.

Comment:  The health insurance overhaul that is now law does not include significant regulatory control of private insurance premiums. At most, plans can be excluded from the state insurance exchanges if their premiums are considered to be excessive. Thus the call for more legislation to increase oversight of premium increases. But would this really address the problem?

Actually the bill does require that 75 to 85 percent of premium dollars must be spent on health care. As long as the insurers demonstrate that they are complying with that requirement, the premium increases are not deemed to be excessive as far as excluding them from the exchanges. Of course they will be excessive, but that is because health care costs will continue to rise at excessive rates.

There are two questions we should be asking. One is why we should consider 15 to 25 percent of the premium to be a reasonable share for the private insurers to consume for their own intrinsic purposes, especially when they place an administrative burden of another 12 percent or so on the providers of health care, amounting to an administrative cost of 27 to 37 percent of the insurance premiums. You would think that this would be a prime target in our efforts to improve health care spending.

The other question we should be asking is why we should finance health care using using a market model that has a half century track record proving that it is ineffective in controlling costs, when we could be using a public insurance model that would use proven economic tools that can actually slow health care increases to sustainable rates.

Regardless of the hoopla, we didn't reform health care financing, we only expanded our existing dysfunctional system. We don't have to accept this. We can still do it right.

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