A Catch-22 for health insurers

C. Scott Litch Contributor
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Americans have a love/hate affair with health insurers. We like that they provide coverage for expensive things like hospitalization and surgeries, but get annoyed when they deny coverage for medications or other services we think should be covered. We are sometimes annoyed with the high compensation level of their executives, but we like the fact that some 80+ percent of us have coverage through our employer, so we don’t have to spend time shopping in the individual market to make sense of complicated policies. Of course, getting coverage through group plans at work naturally limits the number of available options, so we tend to bitch and moan about this as well. Hence, our attitudes about health insurance companies are often contradictory and ambivalent.

But consider this. Suppose you run a small business. Perhaps a currency exchange or a drugstore (these were the businesses of my wife’s maternal grandfather and my paternal grandfather, respectively). Then along comes a federal law with a directive to a federal agency, which promptly issues a notice to your business indicating that:

  • You will have to publicly disclose any proposed increase in your prices to a state agency.
  • The federal government assumes that you are probably prone to excessive and unreasonable price increases, so THEY ARE WATCHING YOU, FOCKER!! (to paraphrase DeNiro from Meet the Parents).
  • The federal government thinks your recent price history shows an unhealthy increase, even though the prices of all the supplies needed to run your business have gone up.
  • If you propose to increase your prices by 10 percent or more, the state agency, aided by the federal government, will thoroughly review your proposed prices to determine if the increase is unreasonable.
  • Your justifications for the price increase will be posted on a government website and also must be posted on your company’s website.
  • If the state agency likes you and doesn’t feel like reviewing your proposed prices, the feds will kindly step in and do the job itself.
  • If your price increases are deemed excessive or unjustified, the state may deny you any necessary permits to operate your business in the state.

This would be a pretty harsh regulatory burden on your business. You might think I’m making this up, but these are precisely the conditions announced to health insurance plans by the Department of Health and Human Services on December 21, 2010 based on authority given to it under the health care reform law. The Catch-22 for health insurers is that their costs might rise (and in many cases already have) precisely because of requirements imposed on them under the health care reform law. These requirements include: prohibiting coverage denials based on pre-existing conditions; requiring an entire range of “essential services” that must be offered under any plan; requiring plans to guarantee the issuing and renewability of coverage regardless of a person’s health status; limiting the amount of rate variation based on age and tobacco use; requiring plans to cover dependents up to age 26; and requiring plans to rebate consumers if the amount of premium dollars spent on clinical services is below a certain threshold. Whatever the merits of these provisions, they clearly increase the cost of offering health insurance. Which, despite the love/hate ambivalence noted above, the last time I checked is still a legal and legitimate business.

This is just one small facet of the 2,000+ page health care law, but it is emblematic of the thinking/conceit of its proponents that government can successfully expand access to care by intervening in the health insurance marketplace and therefore magically creating more choice and efficiency in health insurance options for you and your family. Perhaps it is time to step back for a moment and reconsider this assumption. Otherwise, health insurers under the health care reform law will have to justify rate increases even though their costs of doing business were increased by this very same law. If they raise prices, they will be raked over the coals by government bureaucrats and the media. Or, they can simply absorb the increased costs and either scale back on their services or go out of business. That’s what we call a Catch-22. And lest you think that the health insurance industry deserves such rough treatment, keep in mind that if the government sticks it to one industry, that sets a nice precedent for it to do so again and again — and perhaps eventually to your business.

C. Scott Litch is the chief operating officer and general counsel for a non-profit association. Scott is a licensed attorney, Certified Association Executive, and also holds a masters degree in public policy He is the author of The Principled Conservative in 21st Century America, released in the fall of 2010 just prior to the GOP mid-term election tsunami.