Tag Archives: rate review

Colorado authorities forbid insurers from increasing rates. OK, now the dark side.

Last week the Denver Post reported:

Health-care reform has given the state the power and resources to slap down the kind of insurance-premium hikes that infuriate consumers, with advocacy groups pointing to a failed 24 percent increase request by Cigna.

Read the whole article here: Colorado gains power, resources to reject infuriating premium hikes.

Such rate review is an example of price controls. Like all price controls, they have negative consequences, which I summarized in an earlier post critical of the Colorado Consumer Health Initiative and Progress Now.  Summary:

  • States with rate review have had the same premium increases as those without
  • “Like other types of price controls, they require firms to sell products for less than they otherwise would. Just as rent control of apartments encourages landlords to become slumlordsinsurance price controlswill likely do the same to health plans. For examples, insurers would reduce costs by cutting back on customer service.”
  • Sally Pipes writes: “Insurers can’t endure state-mandated losses forever. Eventually, they’ll have to shed jobs or exit the market entirely. Consumers would be left with fewer choices.”
  • Insurers’ profit margins are very small. “$136 in profit per member per year.”
  • See Peter Suderman’s article Health Insurance Rate Hikes: Unreasonable if Excessive, Excessive if Unreasonable.

 

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Filed under Colorado health care

ObamaCare Regulations Reduce Choice in Health Insurance

A new policy brief by John Graham at the Pacific Research Institute. Key points:

  • Obamacare, signed in March 2010, has not reduced the rate of growth of health-insurance premiums, which increased by 20 percent in the small group market between 2008 and 2010.
  • Obamacare subsidizes states to increase political control of health-insurance premiums, although there continues to be no evidence that such interference reduces the rate of growth of premiums.
  • When monitoring competition, government regulators use a measurement of market concentration that does poorly when applied to choice in health insurance.
  • New evidence continues to support the conclusion that Obamacare will lead to less choice of health insurance.

Read the whole thing: Over Regulation Reduces Choice in Health Insurance: An Update.

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#ThanksObamacare for ineffective authoritarian health plan rate review

Progress Now and the Colorado Consumer Health Initiative “thank Obamacare” for allowing “states to require insurance companies to justify premium increases.

Many states have what are called premium rate review laws that empowering government authorities to forbid insurers from increasing premiums if the reasons do not sound justified. This may sound good, but for those who care about liberty and the right to free exchange, this clearly violates insurers’ rights to sell products at a price they see fit.

For those who support rate review laws regardless of rights issues, they should consider whether such laws are effective.  John Graham of the Pacific Research Institute compared insurance premiums in the 20 states with premium review laws, and with the 19 states that have “file and use” laws the require only that companies file rate increases with the state’s insurance commissioner, who has no authority to reject them.  Graham finds that

There does not appear to be any connection 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 & use states and states requiring prior approval.

Rate review laws are not only ineffective, but also damaging.  Like other types of price controls, they require firms to sell products for less than they otherwise would. Just as rent control of apartments encourages landlords to become slumlords, insurance price controls will likely do the same to health plans. For examples, insurers would reduce costs by cutting back on customer service.

As Sally Pipes has written:

Last year, Massachusetts officials tried to crack down on health insurance rates, rejecting 253 of 274 proposed rate hikes across the state. Chaos ensued. The small-group health insurance market, which served 800,000 of the state’s residents, briefly shut down. Later in the year, all four of the state’s biggest health insurers reported that they’d lost money as the price caps were implemented. Three explicitly attributed their losses to the state’s rate rejections.

Insurers can’t endure state-mandated losses forever. Eventually, they’ll have to shed jobs or exit the market entirely. Consumers would be left with fewer choices. …”

Pipes continues:

ObamaCare’s rate review regulations are premised on the notion that rising health insurance premiums are somehow caused by excess profits and wasteful spending. But insurer profits are actually quite small. The Congressional Research Service reports that in 2009, health insurers’ average profit margin was just 2.6%.

At Forbes.com, Robert Book elaborates on health insurers’ profits:

According to this report from the left-wing organization Health Care for America Now, the five largest for-profit health insurance companies “pocket huge profits” totaling $11.7 billion in 2010. The same report also says they had a total of 86.3 million enrolled members, which works out to a total of $136 in profit per member per year.

The Feds also have also extended their authority into rate review. As Book writes:

The Affordable Care Act does not define what it means for a premium increase to be unreasonable,” but the administration defined it in a regulation issued in May. An increase is defined as“unreasonable” if it is “more than 10%.” (76 FR 29964).

So, if a health insurer increases rates by more than 10%, that’s “unreasonable.” What if costs of the underlying health services they pay for increase by more than 10%? Still unreasonable. What if their patients got sicker, and required more than a 10% increase in services? Still unreasonable. What if they need the money because regulators made additions the list of preventive services – that must now be covered without copays? Still unreasonable. What if they need the money to pay their share of the new $8 billion tax on health insurers? Well of course that’s unreasonable. What if they use the rate increase to pay for golf tournaments for executives? Well, that’s not treated any differently – it’s reasonable if the increase is 9.8% and unreasonable if it’s 10.2%.

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State regulations force insurers out of market, Obamacare will make it worse

From Grace-Marie Turner at the Galen Institute:

Health plans across the country are leaving the small group and individual health insurance markets, forcing people to find other sources of coverage. In this paper, we provide examples of how millions of people in dozens of states already are being negatively impacted by the law — from New York to Colorado, Virginia to Florida, and Connecticut to Indiana.

The paper provides an overview of carriers leaving the market; the impact of Obama administration rules on the child-only health insurance market; the disruptions caused by rules governing health premium payouts and “grandfathering;” and the threats to the Medicare Advantage market. …

Some insurance carriers are leaving the market because of onerous state regulations, others are victims of a faltering economy, but the cascade has been accelerated by the rules that already have taken effect and the many more that are to come as a result of ObamaCare [HR 3590].

Read more: A Radical Restructuring of Health Insurance, by Grace-Marie Turner Galen Institute.

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Filed under insurance, tax code, HSAs, Policy - National, regulation

Obamacare-style price controls succeed in New York: ‘tens of thousands’ to lose their health care coverage

27East.com reports:

Empire Blue Cross Blue Shield, the largest health insurer in the region, announced to health insurance brokers … that it will eliminate most of its small group plans in the New York market effective April 1, 2012, and is slashing its financial incentives for brokers to sell those products—a move one industry insider has said would be “catastrophic” for the insurance marketplace.

…Officers of New York State Association of Health Underwriters sent a letter … addressed to the superintendent of the State Department of Financial Services, stating concerns that a major carrier, which it did not mention by name, is withdrawing from the small group market because of rate request denials/reductions in the last five consecutive quarters. Mr. Hasday later confirmed that the letter referred to Empire.

Read more at DirectorBlue: Obamacare-style price controls succeed in New York: ‘tens of thousands’ to lose their health care coverage.

(via FIRM)

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