Wednesday, December 23, 2009

Assurance is Not Insurance

The Wall St. Journal finally points out something those who work in the health insurance industry have known for quite awhile. Under the proposed Reid Bribery Act of 2009, private insurance companies will essentially be driven out of business.

This is of course the long range goal of the Democrats. They are willing to drop the public option language for now, and instead have substituted regulations and requirements on private insurance companies which will cause them to raise rates. They really can't pick and choose who they will cover under this legislation. By taking on all customers, coupled with all of the minimum coverage provisions contained in the bill the insurance companies have only one option. That is to raise rates.

Wait a minute. There is language in the bill which punishes insurance companies who raise rates.
Initially, all insurers have to take all comers and to renew all policies except for nonpayment of premiums. Insurers are not allowed to take into account differential risks based on pre-existing conditions. And the premium differentials based on such matters as age and tobacco use are smaller than the market spreads. If too many customers demand coverage from a given insurer to insure efficiently, it's the government that will decide how many they have to keep and who they are.

Next, it's the government that requires extensive coverage including "ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse disorder services, prescription drugs, rehabilitative and habilitative [sic!] services and devices, laboratory services, preventive and wellness services and chronic disease management, pediatric services, including oral and vision care." The price squeeze gets even tighter because in every required area of care a collection of government standards will help set the minimum level of required services.

Ostensibly, the Reid bill does not impose any direct price controls on what health insurers can charge for this veritable cornucopia of services. But the bill's complex, cooperative federalism scheme authorizes state regulators, after recommendations from the federal government, to exclude insurers from the exchanges if their prices are too high, which would again be a competitive death knell. Exile from the exchange does not, however, restore traditional underwriting controls, as the Reid bill and other federal and state regulation continue to apply to these firms.

There is also language which punishes the companies if their administrative costs exceed 10%.
The perils of the Reid bill are made evident in a recent Congressional Budget Office (CBO) report that focused on the bill's rebate program, which holds that once an insurance company spends more than 10% of its revenues on administrative expenses, its customers are entitled to an indefinite statutory rebate determined by state regulatory authorities subject to oversight by the Secretary of Health and Human Services. Defining these administrative costs is a royal headache, but everyone agrees that they are heaviest in the small group and individual markets, where they typically range between 25% and 30%, without the new regulatory hassles.

The CBO concluded that this one restriction turned the Reid bill into "an essentially governmental program." In other words, the targeted health insurers would become de facto public utilities whose profits are gutted when the huge compliance costs under the Reid bill are piled on top of the hefty costs inherent in running a labor intensive health-care insurance business.

I don't know how many people out there who read this blog run a business or handle the books for a business, but I am willing to bet that administrative costs account for more then 10% of your expenses.

This bill is not about helping the American people get health insurance or improved health care. It is about setting into motion the mechanism by which the federal government can assume total control of your healthcare.

Their hope is that within a few short years, as insurance costs rise in response to keeping up with what no doubt will be growing list of government mandates the public will cry out for government intervention.

And then with a big smile on their face and a pat on the head to suffering masses they will unload their government option to appease the angry crowds and at the same time no doubt remove so many of the mandates that they required the private insurance companies to meet.

Somehow. Someway. This bill must be killed.

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