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December 23, 2009
Does the Reid bill unconstitutionally turn private health insurers into public utilities?
University of Chicago Law Professor Richard A Epstein has brilliantly argued that the Reid bill unconstitutionally turns private health insurers into public utilities.
Luckily for those who haven't time to study his detailed argument, he's now summarized it nicely in the Wall Street Journal:
As Harry Reid's 2,000 page health-care bill is being rammed through the Senate, most of the public debate has been focused on its expanded coverage, its now defunct public option, and its high taxes. Lost in the shuffle has been its intensely coercive requirements on health insurance issuers, especially in the individual and small group markets. Taken together, these restrictions are likely to drive them out of business and run afoul of the constitutional guarantee that all regulated industries have to a reasonable, risk-adjusted, rate of return on their invested capital.l
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.
Worse still, the statutory rebate is only the tip of a larger regulatory iceberg that permeates the bill. Normally, insurers have the power to underwrite-to choose their line of business, to select and to price risks, and to decline unattractive risks. Not under the Reid bill.