Facing health insurance premium hikes, Obama administration eyes price controls

In one case, deputy insurance commissioner Robert Dynan expressed his hope that insurance companies would win a lawsuit against the state over the issue and that the “problem will go away.”

Instead, Massachusetts was forced to put three insurance companies under oversight due to concerns about their financial health. “The prospect of these companies’ surviving is called into question under a rate cap scenario,” Dynan said.

Critics say the price controls can prohibit companies from incorporating new costs into their pricing structure, forcing rationing or operating at a loss.

Tevi Troy, who was deputy secretary of HHS during the Bush administration and is now a senior fellow at the Hudson Institute, said waiting times or other limitations for medical services could increase as insurers try to make up for higher costs without raising prices.

“Insurance companies are going to have to do something to stay in business,” Troy said.

Troy said provisions in the President’s health care law that will drive premium increases like preventing “recissions” – when insurance kick people off their health care plans for allegedly failing to disclose their preexisting medical conditions – may be worthwhile to stop the insurance industry’s “obnoxious” practices.

“But you can’t bury your head in the sand,” Troy said, to the impact those policies will have on the costs incurred by insurance companies.

On the other side of the issue, activist group Consumer Watchdog said insurance companies will hike premiums not to pay for increased costs, but to pad their profits under the design of the health care law.

The group cites a provision in the health care law that requires insurance companies to spend 80 or 85 percent of the premiums they collect on health care services, rather than administration costs or profit.

Under this provision, the group said, “In the same way that a Hollywood agent who gets a 20 percent cut of an actor’s salary has an incentive to seek the highest salary, insurers will have an incentive to increase health care costs and raise rates so that their 15 percent or 20 percent cut of premiums is a larger dollar amount.”

For this reason, the group argued, the administration must set strict price controls.

“The premium review and justification provisions of section 2794, along with encouragement of state-level premium regulation, are of critical importance for consumers because no other provision of the law has the potential to adequately restrain what insurers can charge for coverage,” the group said.

Besides whether it’s a good idea, the issue could carry significant political implications for November’s elections, experts said.

Troy said the President, in a speech Tuesday, appeared to recognize the danger of the public linking recent premium hikes to his health care law and in claiming to put insurers on notice, was laying the political groundwork for blaming them for the hikes.

Insurance companies, for their part, “recognize the political costs of rate hikes” for them, Troy said, especially since a key turning point in debate over the health care law was when WellPoint announced in February it was hiking premiums in at least 11 states. The announcement breathed new life into a health care bill thought dead in the wake of Republican Scott Brown winning the Massachusetts senate seat.