May 15, 2010
The Health Insurers' Faustian Bargain
In early 2009, health insurance companies struck a Faustian bargain with the Obama administration. In exchange for a law requiring Americans to purchase health insurance, they agreed to regulations requiring them to offer coverage to all comers regardless of preexisting illnesses. Now that ObamaCare is law, insurers are learning that they may have sold their souls to the Devil -- along with the lives of the American people.
At first glance, ObamaCare might seem a good deal for insurance companies by guaranteeing them a market for their services. But this guaranteed market comes at a steep price, with the government dictating whom insurers must cover, what benefits they must offer, and what prices they may charge.
Mandatory insurance will inevitably raise insurers' costs. Under any system of mandatory insurance, the government must necessarily determine what constitutes an "acceptable" policy. This creates a giant magnet for special interest groups seeking to include their favorite benefit in the mandatory package. Under the similar Massachusetts system of mandatory insurance, insurers must offer (and residents must purchase) numerous benefits that consumers may neither need nor want, such as in vitro fertilization, autism therapy, and chiropractor services. This raises costs for everyone to benefit the politically favored few with lobbying clout.
Nor can Massachusetts insurance companies be assured that their revenues will cover those increased costs. Massachusetts's officials recently denied 235 of 274 insurer requests for premium hikes, which insurers claim would force them to operate at a loss. The insurance companies appealed to the courts to override this decision. Under government pressure, two insurers withdrew from the lawsuit and agreed to resume operation under the old, lower rates. A state judge then ruled against the other insurers, forcing providers to abide by the regulators' decision pending further administrative review.
When South Dakota and Kentucky passed similar "guaranteed coverage" and price control laws several years ago, many insurers left these states rather than slowly be bled to death. Implemented nationally, ObamaCare could drive many insurers out of business altogether. In essence, private insurers would survive only at the arbitrary pleasure of the government. And the bureaucrats' whims can be arbitrary indeed.
When insurers recently pointed out that ObamaCare did not actually require them to immediately offer coverage for certain children with preexisting conditions, Secretary of Health and Human Services Kathleen Sebelius immediately threatened to issue regulations forcing them to do so -- regardless of the actual letter of the law.
And Congress is now seeking to expand the newly-passed ObamaCare legislation to give federal regulators the same power as Massachusetts state regulators to veto proposed insurance rate increases unless federal officials considered them "reasonable."
ObamaCare thus places a noose around private insurers' necks. Insurance companies will be required to offer numerous benefits determined by politicians and lobbyists. But they will be allowed to charge only what government bureaucrats permit. No business can survive long if it must offer $2,000 worth of services to customers but can charge only $1,000.
Although it is tempting to take delight at the insurance industry's self-caused plight, the inevitable collapse of the private insurance market would also leave millions of Americans without coverage. Even though this crisis would be caused by government policies, liberals would gleefully portray it as a "failure of the free market" and demand that the government "rescue" health care. The end result would be a "single payer" socialized medical system like Canada's or Great Britain's, with rationing and long waits for medical care.
Instead of making their Faustian bargain with the government, insurance companies should have advocated for free-market reforms such as allowing customers to purchase policies across state lines, repealing existing mandatory benefits, and allowing patients to use Health Savings Accounts for routine expenses and low-cost "catastrophic-only" insurance to cover rare expensive events. Such free-market reforms could reduce insurance costs up to 50%, while preserving quality of medical care.
According to CNN, 8 of 10 Americans are happy with their current health care but legitimately concerned about rising costs. Free-market reforms would address these concerns without herding unwilling Americans into a government-run medical system.
Fortunately, it's not too late. Americans can still avoid that unhappy fate if we demand that Congress repeal ObamaCare and instead implement free-market reforms.
Insurance companies have sold themselves to the Devil and are on the verge of taking the rest of us down with them. Whether we go will be up to us.
Paul Hsieh, M.D. is co-founder of Freedom and Individual Rights in Medicine (FIRM). He practices in the south Denver metro area.