Everyone wants to know whether federal health care reform will lower insurance premiums. This question cannot truly be answered because “federal health care reform” does not yet exist. What the Patient Protection and Affordable Care Act does is set up a process. What happens between now and 2014 -- and beyond -- is uncertain.
What is quite clear is that whatever does happen to health insurance premiums will be "owned" by President Obama, the Democratic Congress and those who implement reform. To reverse the old adage, "they fix it, they own it." The natural course of action, therefore, is for these government officials to use every tool at their disposal to keep the growth of insurance premiums (and co-pays and co-insurance and out-of-pocket costs) as low as possible.
Yet it isn’t only Democrats who are getting in on the act. The California Department of Insurance has engaged independent analysts to review the rate increases proposed by the major insurers in the state. Insurance Commissioner Steve Poizner is a Republican who campaigned strenuously against health care reform in his recent failed bid for his party’s gubernatorial nomination.
The theory is that this review will help hold down costs by making sure that the calculations of the insurers are sound. An independent review of proposed rate hikes by Anthem Blue Cross earlier in the year unearthed an irregularity that led the insurer to delay its increases and apologize for the miscalculation.
Certainly health insurers should be forced to account for their rate increases and be stiffly penalized if they are found to have been out of compliance with the law. However, neither state nor federal regulators have the power, even in the wake of comprehensive health care reform, to actually set insurance rates, only to review them. (President Obama will focus on insurers at a White House event today. California Democratic Sen. Dianne Feinstein has also introduced legislation that would give the federal Department of Health and Human Services the power to review and modify unreasonable rates.) But it's important to remember that to the extent that the focus remains on health insurers' rate increases we may miss the point on overall rising health care costs, and maybe even accelerate their growth
This is because the amount that we pay for private health insurance is primarily determined by the prices that insurers negotiate on our behalf with doctors and hospitals. As in any other negotiation, the party that has more leverage is likely to get the better deal. Medical providers have substantially increased their leverage in California, for example, in recent years amid consolidation among doctors and hospitals, particularly in southern California. So their bargaining power has increased.
Insurers, on the other hand, are scrambling to adapt to the many new regulations put in place through federal reform. These include the "medical loss ratio" requirements that they spend at least 80 percent (85 for those selling in large group markets) of their premium collections on medical care, expand coverage to dependents up to 26 and children with pre-existing conditions, and eliminate lifetime limits on benefits. We can expect that in response to this new regulatory environment, some insurers will go out of business.
And some insurers should go out of business. There are still a lot of bad actors in the insurance industry, and it is a good thing that they will no longer be able to exploit consumers with products that really only ensure medical bankruptcy in the case of illness.
But the logic of rising health care costs is inexorable. Until the people who negotiate with doctors’ offices and hospitals are in a position to get a better deal on our behalf, they will not get a better deal. There were other paths to changing the dynamic of these negotiations from the left (single-payer) and the right (deregulation). But we choose the middle of the road.
Standing in the middle of this road, it is largely the same group of insurers who have to keep fighting to keep health care costs down for businesses and families. And it’s not at all clear that they will be successful in this fight on our behalf if we focus the majority of our own attention on beating up on them.