State Insurance
Experts See Flaw in Obama’s Plan to Curb Health
Premiums
Published: March 8, 2010, New York Times
WASHINGTON — At the heart of President
Obama’s drive to rein in health costs is a proposal
for federal review and regulation of health insurance premiums, with a new
agency empowered to block excessive rate increases.
State officials are leery of the proposal, which raises a host of questions:
How would Congress define “excessive”? How would the new federal power relate to
state insurance regulation?
The proposal has great political appeal. But experts see a serious potential
problem: Federal officials will focus on holding down premiums while state
officials focus on the solvency of insurers, the ultimate consumer protection.
Economists say that holding down premiums does not necessarily hold down the
cost of care, which reflects the prices charged by doctors and hospitals
and the volume of services.
State officials worry that they would be left to police the solvency of health
insurance companies while federal officials pressured insurers to reduce
premiums, as Mr. Obama has done in recent days.
“You can’t separate the underlying solvency of companies from the rates they
charge,” said Sean Dilweg, the insurance commissioner in Wisconsin. “The federal
proposal would be a huge pre-emption of decisions that states have made over
their history.”
Mary Beth Senkewicz, a deputy insurance commissioner in Florida, said, “If
you divorce rate-setting from financial oversight, that’s a fundamental flaw.”
“Premiums must be reasonable in relation to the benefits,” Ms. Senkewicz
said. “That becomes a fairly complex analysis.”
Insurance commissioners said they fully supported efforts to expand coverage
and rein in health costs. But they said it would be risky to hold down premiums
before costs were under control. And they do not expect the federal legislation
to drive down costs anytime soon.
Sandy Praeger of Kansas, one of several insurance commissioners who met with
Mr. Obama at the White House last week, said: “From a consumer protection
standpoint, the most important thing we do is ensure the solvency of companies.
We would strenuously resist not having the ability to approve rates or having
the commissioners’ oversight of rates overturned.”
“You are not necessarily helping the consumer if you keep rates artificially
low,” Ms. Praeger said. “What’s worse for the consumer: having a premium
increase or having to pay the full amount of a medical expense because the
company is out of business?”
Mr. Obama has cited his proposal for a Health Insurance Rate Authority as one
of the most significant elements of his plan to remake the nation’s health care
system.
Representative Jan Schakowsky, Democrat of Illinois, said that in a meeting
with liberal Democrats last week, Mr. Obama “focused in particular on the new
provision that would allow the Department
of Health and Human Services to block exorbitant premium increases.”
As an example, Mr. Obama has pointed to a request
by Anthem Blue Cross to increase premiums for individual policyholders in
California by an average of 25 percent, with some rates going up as much as 39
percent.
Kathleen
Sebelius, the secretary of health and human services, called Monday on five
big insurers to provide detailed public justifications for their latest premium
increases.
“If insurance companies are going to raise rates, the least they can do is
tell us why,” said Ms. Sebelius, who has called their profits “wildly
excessive.”
The president’s proposal is modeled on a bill introduced by Senator Dianne
Feinstein, Democrat of California, which would give the health secretary the
authority to deny or modify premium increases that she found unreasonable.
“We are the only industrialized nation that relies heavily on a for-profit
medical insurance industry to provide basic health care,” Mrs. Feinstein said.
“I believe, fundamentally, that all medical insurance should be not-for-profit.”
In a recent report to Congress, the National Association of Insurance
Commissioners said, “Most states require insurers in the individual market to
obtain prior approval of proposed rate increases before putting them into
effect.”
At least 27 states have “prior approval” requirements. In 12 other states,
rates must be filed with regulators before their use, and regulators often have
the authority to block increases. In other states, insurers must inform state
officials of rate increases or file their rates along with standard contract
forms.
Sara Rosenbaum, a professor of health law and policy at George
Washington University, said federal regulation of insurance rates was
overdue.
“The current system is untenable,” Professor Rosenbaum said. “If insurers
don’t like the results of regulation in one state, they can pull up stakes and
go elsewhere. That’s why states often bend to the will of the industry.”
Prof. James W. Ely Jr. of Vanderbilt Law School said the clamor against
health insurance companies was “reminiscent of populist outrage against
railroads in the second half of the 19th century,” when a number of Midwestern
states created commissions to set rail freight rates. The Supreme
Court, Professor Ely said, held that railroads and other regulated
industries were entitled to a reasonable return on investment — an issue in some
current battles over health insurance.
Mila Kofman, the insurance superintendent in Maine, said federal standards
must be “a floor and not a ceiling” for states.
“I want to be sure that federal legislation does not pre-empt what we do,
will not interfere with our strong standard and broad authority to do rate
review,” Ms. Kofman said.
Anthem requested an average rate increase of 18.5 percent in Maine, but Ms.
Kofman allowed only 10.9 percent. She said the higher rates would have caused
“extreme financial hardship for subscribers.”
The company sued, arguing that Ms. Kofman had set inadequate, “confiscatory”
rates, with no allowance for profit. Under Maine law, it said, the state could
not consider a policyholder’s “personal financial circumstances” in establishing
rates.
Ms. Kofman defended her decision, citing the overall financial health of the
company, as well as its income from individual insurance products. The case is
pending.
The individual insurance market is notoriously volatile, and Susan E. Voss,
the Iowa insurance commissioner, said she had seen some companies paying out 50
percent more in claims than they collected in premiums for some policies in that
market.