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#ThanksObamacare for ineffective authoritarian health plan rate review

Progress Now and the Colorado Consumer Health Initiativethank 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%.