Analysis: Here Comes the Price Controls

Analysis: Here Comes the Price Controls

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

The central conceit of the Obama administration's approach to health care policy has been that a strongly worded chiding or a public shaming is all that is needed to keep insurance rates low.

As Janet Adamy reports at the Wall Street Journal, this approach is about to be tested in the marketplace of reality.

A new federal and state program on health-insurance rates will determine whether bad publicity alone is enough to stop insurers from levying steep increases.

Starting Thursday, the Obama administration and states will automatically scrutinize any proposed health-premium increase of 10% or more as part of the 2010 health-overhaul law. The change applies to an estimated 34.8 million insurance policies that Americans buy on their own or get through a small employer—two markets where consumers have faced particularly hefty increases in recent years...

But there's a big catch. Even if regulators find the rate increase is unjustified, the law gives them no new powers to block the insurer from charging it. Instead, federal regulators say they are hoping that disclosure of large increases—which will be posted on the Department of Health and Human Services' website—will be enough to discourage carriers.

This policy is almost certainly doomed to fail - it hasn't worked in the past, and transparency in this case is unlikely to result in public shaming, simply because the large increases tend to be justified by the calculations of the carriers. For health plans nationally, the profit margin is a mere 3-5% - and under Obama's law, 80 percent of all premiums must be spent on health care itself.

What this means, in practical terms, is that the vast responsibility for the increases in premiums will be due to government policies and the increasing cost of care, not some devious plot to disguise these factors in the form of rate hikes on increasingly strained consumers.

The inevitable result of this circumstance: the administration will have to go back to the Congress seeking the actual power to stop rate hikes directly and forcibly, making the federal government takeover of the health insurance industry complete. The problem: the administration won't be able to get that, at least not through this Congress. They likely missed their shot - so when this aspect of the enterprise fails, expect them to double down on the case for single payer as the only coherent solution to stop those evil insurers.

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)