IF YOU CAN'T CONTROL THE COST, CONTROL THE PRICE

A recent Wall Street Journal editorial ("ObamaCare Mulligan", 4/26/2010) floats the question of why Democrats are initiating actions intended to impose price controls on health insurance nationwide. Drawing liberally from the WSJ piece, here’s my take...

Does it really surprise anyone that the headlong rush into passing a reform bill may have obscured a few concerns along the way?

How about this minor one - there are no substantive provisions in the new law that address slowing the growth rate of health care services cost. It is almost entirely centered on broadening access to health plans and regulating insurers that retain the privilege of operating in the new paradigm.

As such, new coverage and participation mandates can be expected to escalate utilization of health care services, further burdening an overextended pool of healthcare providers. Without mechanisms to prevent it, what will stop this sequence from leading to price escalation from the providers who now will have even further demand for their services creating leverage to raise the cost bar?

Aha! Let's use the power of government to impose artificial price controls! That always works, right?

The Senate Health Committee recently began debating a bill that would allow the States to regulate health insurance premiums, with the power to reject "unreasonable increases". This is a clear indication of growing concern about insurance pricing escalation being tied directly to the passing of the reform law, with the likely impact of political disfavor falling upon those responsible.

While many states have some limited form of individual and/or small group rating regulation, that mechanism has rarely been used as a political wedge. The very idea runs counter to a foundational principle in the reform law - namely, that fostering local health plan competition will help keep prices checked. Driving commercial insurers out of markets, or worse toward insolvency, is inherently inconsistent with that basic premise.

The catalyst for this panicky move by Senate leaders? The release of an analysis by Medicare's chief actuary last week, which suggests higher health expenditures resulting from the coverage expansions will eclipse any offsetting provisions in the law intended to slow health care growth.

Where might this path ultimately lead us? It's not hard to foresee contentious negotiations between insurers trying to maintain modest profit margins and state regulators bent on capping insurance costs at the register without regard to the underlying systemic issues driving the costs upward. It's already happening in some states right now, most notably in Massachusetts (the state with a "universal" health care mandate upon which many of the federal reform law tenets are modeled...).

Such a process could lead to re-emergence of a “public option”, and its eventual default positioning as the last plan standing after commercial health insurers have withered away. Should we regard this possibility as an unintended consequence of an altruistic endeavor, or the intentional outcome of a longer term strategy? Hard to imagine the Machiavellian implications of the latter, yet to completely accept the former would seem naive...