Regulation

Insurers Gone Wild!

Why health insurers welcome Obama's plan to tame them

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"We allow the insurance industry to run wild in this country," President Obama declared on Monday. "We can't have a system that works better for the insurance companies than it does for the American people."

Yet Obama's plan to tame health insurers would boost their business, protect them from competition, and guarantee their profits, all at the expense of consumers and taxpayers. It is therefore not surprising that the insurance companies, while they object to the president's rhetoric and quibble over some of the details, are happy to be domesticated. Here are five ways in which Obama would help insurers while pretending to fight them:

The individual mandate. What industry wouldn't welcome a law requiring everyone in the country to purchase its product? The insurers' only objection to this edict—which would force young, healthy people who don't want insurance to subsidize the care of older, sicker people who do—is that the penalties for failing to comply are not severe enough.

The employer mandate. Requiring businesses to buy medical coverage for their employees brings the insurers more conscripted customers. It also shores up a perverse system of employer-provided health insurance that insulates consumers from prices, limits their choices, and weakens competition.

Subsidies. Allocating taxpayer money to help individuals and small business buy medical coverage makes customers less price-sensitive, allowing insurers to charge more than they otherwise could.

Regulations. Obama wants to dictate the details of what he considers to be minimally acceptable medical coverage, including the size of deductibles and the extent of benefits. This policy, which forces people to buy pricier policies than they would choose on their own, is like decreeing that all Americans should buy a Nissan Altima with GPS, a sunroof, and leather seats, even if they would prefer a Hyundai Accent.

Limits on competition. Obama pays lip service to the idea of letting health insurers, like other insurers, compete for customers across state lines. But his minimum coverage requirements would undermine a major benefit of such competition: the ability to escape a particular state's restrictions on the policies insurers can offer.

If Obama's plan works as advertised, it will be a huge boon to insurers. As he himself notes, "they're going to have 30 million new customers" thanks to the government's mandates and subsidies.

To distract us from the favor he is doing for insurers, Obama claims to be getting tough with them by demanding that they take all comers and charge them all the same rates, without regard to health. While abolishing risk-based pricing contradicts a basic principle of the insurance business, the industry has to weigh the loss of that freedom against the gain of government-guaranteed revenue.

Despite his talk about reining in "excessive" premium hikes, Obama's plan commits him to keeping insurers financially sound so they can provide the coverage he is promising. Federal regulators, like their state counterparts, will find that "you can't separate the underlying solvency of companies from the rates they charge," as Wisconsin's insurance commissioner recently told The New York Times. "From a consumer protection standpoint," Kansas' insurance commissioner agreed, "the most important thing we do is ensure the solvency of companies."

In essence, then, Obama's plan would use money forcibly extracted from taxpayers and policyholders to keep insurers healthy. He says this arrangement means "insurance companies would finally be held accountable to the American people."

The collectivist language is telling. I don't want insurance companies to be "accountable to the American people"; I want them to be accountable to me, as a consumer. That situation, which is also the best way to bring costs under control, can be accomplished only by promoting choice, increasing competition, and removing the barriers that prevent consumers from receiving and responding to price signals.

Insurers may prefer the security of Obama's domestication to the uncertainty of scrounging for customers in a free market. But why should we bear the cost of their care and feeding?

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist.

© Copyright 2010 by Creators Syndicate Inc.

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  1. [I]t will be a huge boon to insurers. As he himself notes, “they’re going to have 30 million new customers.”

    Anybody know where we’ll get all the doctors, nurses and staff to service 30 million new cattle?

    1. Initially, we won’t need more healthcare workers since those people are already receiving the health care they need/want. Remember this is about insurance not health care.

      Then they’ll realize they’re getting something for free/super cheap and flood the system for every minor cut and sniffle. The system gets backed up and doctors limit new patients and by DEMAND CURVE they raise their prices.

      Then the cost shoot up and government has to either limit (ration) access and/or put in place price controls.

      Then the doctors and other healthcare workers – their wages wages constrained – quit and go into insurance.

      Then we’re fucked.

      1. Agreed. It must lead to rationing. Obama et al have attempted to equate potential government rationing with actual insurance company “rationing” (just as auto dealerships “ration” car sales to only credit-worthy applicants). A better analogy would be the “rationing” of home sales to credit-worthy home buyers before the sub-prime mortgage market, with well-documented government interference and culpability, blew that fuse. As with Fannie and Freddie, the ultimate result must be a government takeover of medicine.

      2. Along with the “frivolous doctor visits”, there will be excessive risk taking. People who suddenly are just given health insurance will undoubtedly begin doing things they might normally refrain from. Things like indulging in a friendly game of backyard tackle football or skydiving. This excessive risk taking will lead to a larger number of ER visits (among other things). This, like frivolous doctor visits, will place a much larger strain on the healthcare system.

        I oppose “Obamacare”, but if this is the best argument you can come up with, then we really are all fucked. Your argument implies that people who already have insurance are doing the things that you say will happen if the uninsured are given insurance. Do you have insurance? Do you go to the doctor for “every minor cut and sniffle”? If you do, perhaps you are part of the problem. Or perhaps it’s not you, but rather the “managed care” aspect of health insurance. If everybody had to pay full price for office visits, there might be fewer visits. But I won’t even make that argument.

        The simple fact of the matter is, you can not reduce health costs by reforming the insurance. Costs can only be cut on the delivery. It’s like saying that home prices will go down if home owners insurance were reformed. It’s not going to happen unless, possibly, if everybody had to go on the open market and buy their own insurance.

        They say healthcare costs are rising much faster than inflation. Which inflation is that? CPI inflation? Is that before or after energy and food is factored out? My guess is, and I haven’t been able to directly link the two yet, is that healthcare costs are on track with inflation; real monetary inflation. Eliminate deliberate monetary inflation, and costs will stabilize, and not just in healthcare.

      3. Plague Dog, “Then the cost shoot up and government has to either limit (ration) access and/or put in place price controls.” Why wouldn’t they just undo the restriction on the number of physicians?

        1. Why wouldn’t they just undo the restriction on the number of physicians?

          Are there laws that actually limit the number of practicing physicians?

          1. Controlled by the AMA.
            http://wallstreetpit.com/5769-…..es-so-high

          2. Absolutely, I think health care will be a major issue in the coming years and more over if we don’t have laws then we have chances to looses what we have. Also,if the number of physicians are reduced then can we really have good healthcare?? Texas Defensive Driving

      4. We already have mandatory insurance for auto personal injury and liabilty. Universal enrollment lowers cost for needed coverage. We all need health insurance, too, to spread the risk of illness and accidents.

        1. Car insurance is only mandatory if you drive a car on public roads. It’s not required just because you exist.

    2. Yeah, SEIU and ACORN have plenty of low income individuals ready and waiting to fill the gaps.

    3. There won’t be 30 million new cattle because a lot of them will pay the less-expensive fine (or hope to not get caught not paying it) rather than the more-expensive health insurance premiums.

      1. It remains to be seen how many will opt for the fine over the premium. Many fence-sitters, who were going to purchase care eventually, might be prompted to do it sooner rather than later. If enough of them make that choice, the system will be overloaded.

      2. Well, given that there won’t be exclusions for pre-existing conditions, I imagine lots of people will pay the fine if they’re not sick. Why pay otherwise, if you can get coverage whenever you want and pay no risk premium?

    4. Why is everyone so racist here?!

      Jason at Manuka Honey

  2. If the government is allowed to force you to buy one product, why will they not then be allowed to force you to buy others?

    I know Mr. Sullum was making a joke with his analogy about the government forcing people to buy preferred cars, but the government now owns GM, so is it really that big a mental leap to think that they can/will manadate that we all buy GM?

    It’s nothing less than the complete destruction of the free enterprise system.

    1. Here in Massachusetts, GM is running radio ads (and maybe tv, who knows?) lobbying the legislature to disallow some sort of competition among parts providers.

      This company, that is owned by the U.S. government, partly paid for by the taxpayers of Massachusetts, is paying radio stations money to run an ad that will make GM vehicles more expensive.

      Someone find me a random UAW worker so I can fuck him in the ass (turnabout is fair play)

    2. Here in Massachusetts, GM is running radio ads (and maybe tv, who knows?) lobbying the legislature to disallow some sort of competition among parts providers.

      This company, that is owned by the U.S. government, partly paid for by the taxpayers of Massachusetts, is paying radio stations money to run an ad that will make GM vehicles more expensive.

      Someone find me a random UAW worker so I can fuck him in the ass (turnabout is fair play)

      1. Turnabout is fair play.

  3. Remember, Democrats protect us from the evil (insurance) corporations. Never forget that.

    1. Up late, coke-boy?

      1. Up early, unfortunately, hair-boy. Time to sleep for three hours. Sleep is hard.

  4. Jacob:

    You glossed over one very important point: the mandate is way to weak to be effective and means very little to insurance companies. If the fine for not getting coverage is $5,000 annually and coverage would cost a young male $8,000, what is he going to do? He’s going to pay the fine and if he gets sick, go to the emergency room. If he gets a chronic condition, he will apply for insurance which must be issued to him. This is a little thing called Adverse Selection that even the most economically astute lay-people seem to underestimate. Adverse Selection will run rampant under Obamacare and it will destroy the private insurance industry. It’s not as good as a public option for the statists, but it will get the job done.

    1. The fines will be a new source of revenue for the government too. I wonder what the “cool” young people who voted for Obama are going to think when this law hits their wallets hard.

  5. It is about controlling 1/6th of the economy. President Obama could give a hoot about the 30 million uninsured. Power and control. This Administration does not want to serve, They want to RULE.
    http://www.suckitupcrybaby.com

  6. Obama wants the insurance companies think they are getting new business, but they are actually being led to the slaughterhouse. Pre-existing conditions and insufficient fines for no coverage will destroy private insurance in ten years. Fortunately that hot lady, Ignati, I think, is way too smart to be fooled by it. Sullem is wrong if he thinks the insurance companies are willing to become domesticated.

    1. “What is troubling is that this decision opened the floodgates for corporations and special interests to pour money into elections, drowning out the voices of average Americans,” Gibbs said.

      The Administration must listen to subliminal tape loops in their sleep. How else to account for the eerie consistencies in their talking points? There’s a canned response for every possible question and scenario.

    2. Warty misspoke.

      I am not “kind of a dick.”

      I am an actual dick.

    3. I thought it also reflected poorly on Alito when he broke protocol with his reaction.

      1. I was proud of him, myself. Obama broke protocol and acted like a boor by berating a captive group of justices before a cheering, partisan gang. Alito had every right to express his displeasure, minimal as it was.

        1. Ed, Alito knew full well that his position was to sit and listen. The justices don’t have to agree with obvious political posturing but they have a duty to remain above the fray. I am sure Alito will write or comment on this as a moment he regrets.

          1. I have to agree with ed.

            And Obama is such a boor.

  7. Obama pays lip service

    You know, this site *is* rife with racism.

    1. Obama his payed for his lip service.

  8. Jacob Sullum is so sensible and, well, reasonable that it’s frankly a little boring. Sure, he’d be a great policymaker (no demagoguery, good brains, a steady hand at the wheel), but let’s face it, he don’t have Scott Brown’s lust-inducing good looks or Corzine or Bloomberg’s billions.

    Won’t somebody hire this guy as their Michael Gerson/Karl Rove/puppet-master-chief-of-staff???

  9. Jacob, You contradict yourself when you claim insurers welcome Obama’s plan. They don’t want the individual mandate precisely because they will make less profits when insuring customers with pre-existing conditions.

    1. They don’t want the individual mandate precisely because they will make less profits when insuring customers with pre-existing conditions.

      Why are not life, auto, fire, and disability insurance companies being required to cover people with pre-existing conditions?

      1. Michael,I am not sure if it is you who uses that same argument over and over but it is silly. Cars and houses are not born with pre-existing conditions and you can walk away or sell them when they are no longer financially viable. Life insurance should be based on risk and the market works but it is not necessary for life itself. Disability insurance is a total red herring in this discussion.

        1. Hate to break it to you but *all* insurance is based on risk.

          You can absolutely compare life insurance to health insurance. Both are protections against a form of loss, and the cost of that protection is based on risk.

          A 30 year-old man in good health who passes a paramed is going to pay a lot less for a $500,000 20 year term life policy than a 65 year-old man with diabetes who purchases a $25,000 simplified issue 10 year term life policy with no paramed. And that’s the way it should be.

          The idea that the calculus with health insurance is somehow different is naive. A health insurer (read: private entity who contracts with you voluntarily to provide protection against loss) does not exist so that you can pay $1,500 for a $100,000 surgery that an underwriter noted you are potentially more likely to need.

          If you want to argue that healthcare (and not health *insurance*) is somehow necessary for life and should therefore be a “right”, that’s fine. But you’ll somehow have to explain how it is that you have a right to someone else’s labor.

          1. Insurance man, whether you have life insurance or not will not conduce cause of death. Lack of health insurance is proven to be a contributing factor to a shorter lifespan. “If you want to argue that healthcare (and not health *insurance*) is somehow necessary for life and should therefore be a “right”, that’s fine”. I was simply comparing health, life, auto, fire, and disability insurances. However, I do believe that heath care is a right and no argument on this site has made me feel otherwise.

        2. Cars and houses are not born with pre-existing conditions and you can walk away or sell them when they are no longer financially viable.

          Cars and houses may have defects when they are built, and neither auto nor fire insurance will cover these defects, which are pre-existing conditions.

          Life insurance should be based on risk and the market works but it is not necessary for life itself.

          Life insurance is necessary to prepare for unexpected death, to cover for funeral expenses as well as lost income.

          1. “Cars and houses may have defects when they are built, and neither auto nor fire insurance will cover these defects, which are pre-existing conditions.”
            “Life insurance is necessary to prepare for unexpected death, to cover for funeral expenses as well as lost income”. States have lemon laws for defective autos and new homes include a warrantee and are built with code regulations. You are not obligated to buy a house or a car and thus insurance becomes a choice. Funeral expense insurance is geared toward the susceptible elderly. It only makes sense to have life insurance, if you have young children or a spouse (who does not work)and it does not factor into your lifespan. I still don’t see how your points have any relationship to health insurance.

  10. Here is a better plan than Obama’s, and it didn’t take me more than a few seconds to formulate it. It isn’t perfect, but it’s a useful step in the right direction, since it will bring market forces to bear on the price of insurance and on the price of medical services.

    1) Preserve the tax deductibility of health insurance premiums, but decouple the provision of health insurance entirely from employers. Allow any and all health insurance providers to compete nationally (like Geico and Progressive do for auto insurance), selling directly to consumers, and allow people to treat their premiums like they do any other pre-tax expenditure (such as Section 125 benefits). So, your employer no longer chooses your insurer for you. You do that yourself, based on best value.

    2) Regulate health care providers so that they must provide a price sheet for every test and service and procedure they provide, before the service is provided. Regulate insurers so that they must provide their discounted rate sheet for these services to the customers before the services are provided.

    Both of these measures bring market forces to bear, and will help to control costs.

    1. Have you suggested this to Congress?

      1. My Congressman is a Democrat, and he’s not interested in implementing any such plan (I know this for a fact). He’s a hack who’s interested in following the party line, and advancing his career (he wants to become a Senator next). Suggesting it to the Republicans would do no good, since they’re not in power. So no, I haven’t bothered to suggest it to Congress.

  11. Government and Corporations being too chummy??? Hmmmm where have I seen that before??

  12. Why are not these same policies being applied to life, disability, fire, and auto insurance?

    Anyway, is not the real issue health care costs, not health insurance costs? Direct price controls on health care would be much more effective.

    1. Surely you jest. Price controls have never worked, and can never work. Neither in theory, nor in practice. The government can’t enforce a price for a good without destroying the legal market for that good, or causing shortages in that good. Please see the history of the Soviet Union.

  13. High health care costs are not the result of greedy private insurance companies, in fact, health care is dominated by non-profit providers like Blue Cross Blue Shield. The non-profits actually enjoy an unfair advantage in both regulatory and tax issues. Even with this, they tend to be only slightly cheaper then private insurance companies. I am sure if for-profit insurance companies had the same tax and regulatory advantages, they can provide health insurance lower then the non-profits can.

  14. You have to be the stupidest person on the planet or the evilest person on the planet to say that that one of the most regulated businesses in the country is allowed to run wild.

    1. Well if it weren’t true, we wouldn’t be in this mess, and or paying out 75 million a year to medicaid for unnessecary c sections. nearly 70% of Medical insurance is ” birth” insurance. We have the highest infant mother deaths in the world, the “best” health care, but some of the most unhealthy people on the planet outside of a third world famine.

      Stupid troll. Tricks are for dicks.

  15. So if I choose not use obama care…I still have to pay for health insurance, even though I am my own practitioner…wait what?

  16. Nothing shows that an industry, or a company, is greedy, like raking in profits of less than 4% a year on average.

    Those monsters!

  17. “Nothing shows that an industry, or a company, is greedy, like raking in profits of less than 4% a year on average.

    Those monsters!”

    Bastards!

  18. “”Nothing shows that an industry, or a company, is greedy, like raking in profits of less than 4% a year on average.

    Those monsters!”

    Bastards!”

    Savages!

  19. Nice piece. Keep Going, Thank you.

  20. Obama is right. We need healthcare reform, we want healthcare reform and the time to act is now. It’s time for Congress to do the right thing and pass this bill. They need to put aside their differences and do what’s best for the country. It’s not a perfect bill. It needs to be tweaked with future legislation, but it’s far better than doing nothing and staying with the status quo, which is literally killing us.

    From a personal standpoint, as a small business owner, I really need reform now. Insurance premiums and deductibles are killing me. The only way we can afford family health insurance is with a policy that has a $5,000 per person deductible per year and they want to raise that to $7,500 per person for the same premium. That means that we pay out-of-pocket for everything and it really adds up when you have a family. The insurance company I use is making billions in yearly profits and they want to raise my premiums and they have yet to pay a penny out for a benefit for anyone in my family..Premiums to cover my employees are ridiculous. We carry the most basic plan they have and every year I cover a larger percentage of the cost because my people would otherwise see their wages go down. This is the stuff that keeps me up at night worrying about whether it’s worth it.

    It’s easy for someone with a job at a big company who gets free or close to free insurance coverage to take shots at this bill and say we don’t need it. Trust me, I need it and my employees need it and we need it now. You want the economy to improve? Pass this bill. home gym system

    1. I totally agree with you, Obama is right, We need an Healthcare reform, to help people who needs more

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  23. I am from a European country and in Europe we have health insurance for a very long time, so it is not a topic of discussion anymore. You just take it as a given fact, like taxes.
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  24. Finally some regulations seem to come for insurances. Its just wrong that comppanies could have dictated insurance plans. ofen

  25. I mean, er, awesome thoughts, Liz – I need some time to think about this!

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  27. It also reflected poorly on Alito when he broke protocol with his reaction.

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