What Health Insurers Want: Tougher Penalties For Those Who Don't Buy Insurance

The insurance industry group AHIP is circulating a new study arguing that key elements of the proposed health-care overhaul will significantly raise premium prices for the insured. Democrats on the Hill, naturally, aren't happy. The reaction from the spokesman for Democrats on the Senate Finance Committee was typical: He called the report "untrue, disingenuous and bought and paid for by the same health insurance companies that have been gouging too many consumers for too long."

Two points on this.

The first is that the report does seem, at first glance, to be somewhat selective in what it chooses to report. It doesn't actually look at the bill as a whole; instead, it looks at four provisions likely to raise premium prices. It also makes some odd assumptions about how consumers will react to new regulations. That doesn't mean the report is wrong that premium prices will rise. State-level experience with insurance-market regulations like guaranteed issue and community rating suggests they will. But it's worth remembering that the report doesn't provide a complete overview of any of the bills now making their way through Congress.

The second point, and the more important one, is that, judging by the AHIP spokesman's comments on Fox News this morning, the insurance industry's intention here isn't necessarily to oppose reform. Instead, I suspect AHIP is hoping to push legislators to make the individual mandate—the requirement that everyone purchase health insurance—even stronger.

It's obvious why insurers would favor such a rule: What industry wouldn't want a law requiring just about everyone to buy its product? Thing is, health insurance mandates are only as powerful as their penalties, and, in the most recent Senate Finance Committee bill, the penalty for not buying insurance is relatively low. As NPR explained last week, "there would be no penalty for going without insurance in 2013. And the fines imposed starting in 2014 would amount to $200 for an adult, rising a few hundred bucks each year to $750 in 2017. Insurance would costs thousands of dollars a year, so the math isn't very pretty for the risk pool."

A weak mandate means insurers would be stuck with all sorts of expensive new requirements, but with fewer new individuals purchasing their product—meaning less money coming in to offset the cost of those pricey regulations.

Now, I'm not in favor of a mandate, and the experience of Massachusetts—which now has both a mandate and the highest insurance premiums in the country—indicates that mandates won't necessarily bring premium prices down.

But, as far as I can tell, the insurance industry mainly just wants to bring people into the system and is willing to play ball with other regulations if it can do so. Seems likely that its real gripe here isn't so much that industry regulations are too onerous—it's that the requirement for the rest of us isn't strong enough.