Mandate minus price controls may increase healthcare costs

By Noam N. Levey and James Oliphant
Los Angeles Times
September 24, 2009

In the drive to bring health coverage to almost every American, lawmakers have largely rejected restrictions on how much insurers can charge, sparking fears that consumers will continue to face the skyrocketing premium increases of recent years.

The legislators’ reluctance to control premium costs comes despite the fact that they intend to require virtually all Americans to get health insurance, an unprecedented mandate — long sought by insurance companies — that would mark the first time the federal government has compelled consumers to buy a single industry’s product, effectively creating a captive market.

“We are about to force at least 30 million people into an insurance market where the sharks are circling,” said California Lt. Gov. John Garamendi, a Democrat who served as the state’s insurance commissioner for eight years. “Without effective protections, they will be eaten alive.”

But Democrats have shied away from regulating premiums in the face of charges from business leaders and Republicans that controlling what insurers charge would be meddling too much in the private sector.

As a result, while states have long supervised what companies charge for mandated automobile and homeowners insurance, the idea has been largely banished from the healthcare debate.

“That would be a very substantial additional intervention in the marketplace,” said Sen. Jeff Bingaman (D-N.M.), a member of a bipartisan group of lawmakers who worked with Senate Finance Committee Chairman Max Baucus (D-Mont.) on his healthcare bill. “I just don’t think the support would be there for that kind of a change.”

Nor are lawmakers seriously considering any proposals to regulate what doctors, hospitals, drug makers and other healthcare providers charge — a strategy used by several European countries to control healthcare spending.

But even the insurance industry’s leading representative in Washington acknowledged that those reforms may not slow the rising cost of premiums soon.

“You can’t restrain premiums unless you restrain medical costs,” said Karen Ignagni, president of America’s Health Insurance Plans, on the industry’s view of the problem. “So far, members of Congress have been allergic to that.”,0,2139648,full.story

“It’s the Prices,Stupid:”

One of the more unique features of the health care system in the United States is that we spend far more on care even though our use of health care services is comparable to other nations. The difference is in the prices. Other nations use government regulation to improve pricing, but the United States persists in refusing to intervene in market pricing.

Does the current model of reform under consideration by Congress do anything to alleviate the upward pressure on prices? They propose an exchange of competing private plans to control prices, while explicitly excluding a public plan with “administered pricing.” So the answer is “no.” Market competition of private plans has had no impact on controlling health care spending in the past, and there is no private sector mechanism that would have any beneficial impact in the future.

Think of the regulatory changes proposed. Congress would require insurers to accept those who they currently exclude because of preexisting disorders. They would place a limit on out-of-pocket expenses, requiring the balance to be paid by the insurers. They would remove the lifetime cap on coverage, requiring insurers to pick up the costs of those with very expensive medical problems. These and other measures would result in significant increases in private health insurance premiums, making the plans even less affordable.

Since insurers would be required to compete with each other, they would have to continue to pay our comparatively high prices if they are to attract enough physicians and hospitals to guarantee adequate provider networks. That’s the way the market works. Thus the current model of reform is a guarantee that we will continue to see unaffordable pricing throughout our health care system.

In a remarkable moment of candor, the insurance industry’s chief lobbyist, AHIP’s Karen Ignagni, states that Congress has been “allergic” to restraining medical costs. Since the private insurance industry has been in charge for the past several decades, obviously they are hopelessly allergic as well – incurably so.

Do we want to be a captive market of the private insurance industry? Or do we want to be captives of a public insurance program like Medicare? Just ask our seniors what they thought on turning 65.