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Why is Washington Afraid of Health Insurance Premium Regulation?

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The head of the American health insurance lobby, Karen Ignani, is urging Congress to double the tax penalties for Americans who don't buy mandatory health insurance. That's right, health insurers are hopping mad that the guaranteed market that Congress and the president are about to deliver them -- full employment for insurance executives -- only comes with a $1500 tax penalty for conscientious objectors, not a $3,800 penalty.

Today’s Los Angeles Times shows how little Americans will be getting for their mandatory money to health insurers if reform doesn’t get tougher on them.   The newspaper reports on a case going to trial next week that alleges Anthem Blue Cross (aka Wellpoint's California subsidiary) automatically denies liver transplants at hospitals without Blue Cross contracts for its PPO patients. Now that’s deserving of Congressional action.  PPO patients are supposed to be able to get treatment anywhere, especially when a liver transplant candidate can cut his wait down by a year and a half.

What’s missing in health care reform is getting tougher on insurers not consumers.  Consider the profits health insurers like Wellpoint/Anthem Blue Cross can make mistreating patients like Ephram Nehme.

The Swiss health care system – with its mandatory private insurance policies  and subsidies for the poor – is now being held up as the consensus model for
Congressional reform.  Forgotten is the fact that Swiss insurers are not
allowed to make a profit on their basic mandated insurance policies, only on
supplemental coverage.

The Swiss system is more like a regulated public utility.  Profit is forsaken to make the necessity of coverage available. On Capitol Hill, however, even regulation of the premiums health insurers can charge appears to be off the table.

Federal lawmakers argue against premium regulation as too heavy-handed an intrusion in
the market, despite being ready to take the unprecedented and intrusive step of
making private health insurance compulsory for every US resident.

Sen. Jeff Bingaman (D-N.M.), a central figure in the key Senate Finance Committee
negotiations, said regulating rates "would be a very substantial
additional intervention in the marketplace. I just don't think the support
would be there for that kind of a change."

Health insurers will literally be able to charge whatever they want in premiums
because lawmakers don’t want to mess with their market. 

In these hard economic times, that’s a recipe for disaster, and the Democrats need
to realize this will backfire and ultimately cost them control of the US government
if they don’t embrace strong premium regulation.

Washington need only look to California’s property casualty insurance market to see
insurance premium regulation doesn’t confine markets but actually sparks
competition and innovation.

Nearly twenty-one years ago Californians revolted against mandatory auto insurance
laws at the ballot by enacting the toughest property casualty premium regulation in America, Proposition 103. The law required auto insurance
companies to seek permission through an elected insurance commissioner prior to
raising premiums.

The ballot measure also allowed members of the public to challenge unnecessary
premium hikes, a so-called intervener system similar to that in place in many
public utility commissions.

The Consumer Federation of American reported in 2008 that Proposition 103 had saved
Californians $61.8 billion on their auto insurance alone. That doesn’t mean
auto insurers aren’t prospering though. 

California is the America’s fourth most competitive insurance market, while completely
unregulated Illinois, home of Allstate, ranks 44th.  Fewer California
drivers are thrown into high-risk pools and insurers’ average profit of 13.9%
in the state from 1989 to 2005 is  double the national level of 6.5%.
 The law regulated all major lines of insurance, except for health and
workers compensation, which are the only two consistently dysfunctional
insurance markets in California.

Strict premium regulation is a win-win because insurance markets work best when the
boom and bust tendencies of insurers, known as the insurance cycle, is tempered
by the steady hand of a publicly accountable regulator.  

The well-documented insurance cycle shows that insurers price their premiums based
more on investment opportunities than outstanding claims.  When Wall
Street is rolling, insurers lower  premiums to raise capital that they can
invest.  In bear markets, premiums go up to cover losses.  

In California, the elected insurance commissioner balances the insurer’s need for
investment income against the need to secure insurance pools and prevent wild
vacillations in premium. In the long run, this works to the fiscal health of
the company and the policyholder.

Regulators themselves, even publicly accountable ones, also need the help of the public to
get it right. Too many state insurance commissioners are not elected, but
appointed through a revolving door that leads from and to insurance companies.
That’s why an important adjunct to the regulatory framework established by
Proposition 103 is its mechanism for public scrutiny and participation in the
process of reviewing and approving rates. Proposition 103 grants consumers the
right to challenge improper rates and practices before the Department of
Insurance as well as the courts.

Consumer Watchdog alone has saved California policyholders $1.8 billion since 2003 by stopping unnecessary premium increases and challenging insufficient premium
decreases under Proposition 103’s intervener and prior approval mechanisms.

Industry lobbyists and legislators have a knee-jerk
hostility to regulation as counter to competition, but the highly consolidated health insurance market today is dysfunctional precisely because it lacks strict regulation. Simply requiring more Americans to buy insurance won’t fix the lack of competition and innovation in the market. Only an even playing field with clear rules and accountability

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