Analysis: Massachusetts Shows Why Price Controls Can't Stop Premium Hikes

Analysis: Massachusetts Shows Why Price Controls Can't Stop Premium Hikes

Benjamin Domenech

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

Kaiser headlines a a story today surveying health insurance premium levels throughout the country as "health premium costs vary widely" But the reality when you read the referenced report shows that premiums are overwhelmingly more expensive in the solid Blue northeast, where top-down policies have made little impact.

Why is that? John Graham of PRI outlines it here in the context of Massachusetts:

In a new study, “Bust or Bailout? The Future of Medical Plans Under Obamacare,” I model health plans’ future solvency under these conditions. My analysis concludes that the state’s largest health plan, Blue Cross Blue Shield of Massachusetts (not involved in the research) is likely to be insolvent by about 2016 — even if the state releases its death grip.

Under ObamaCare, this problem will soon go national. ObamaCare distributes federal grants to states that encourage their insurance departments to increase their power of prior approval of premium increases. States are responding by considering new laws to expand those powers.

As Massachusetts’ experience shows, politicized rate reviews give perverse incentives to politicians to blame private health plans, rather than government interference, for increasing health costs. Although they add more value than most people believe, health plans are largely pass-throughs. Unlike Ms. Coakley’s recommendation, ObamaCare does not give politicians control of fees that providers charge to private health plans — nor should it.

Nevertheless, giving politicians control of insurance premiums merely squeezes insurers’ margins. Nor is there evidence that prior approval of premium increases has protected consumers from unreasonable rate hikes.

Writing at Forbes, Avik Roy reminds us how much was promised in premium lowering in the context of passing Obamacare, and how little will have been delivered for most Americans even under the White House’s best case scenario:

“Remember when the President promised that Obamacare would reduce the cost of health insurance? “Under [our] plan, if you like your current health insurance, nothing changes, except your costs will go down by as much as $2,500 per year,” said Obama in 2008. The law, like Romneycare in Massachusetts, would magically eliminate the mythical “free-rider problem” by massively subsidizing health spending for the lower middle class. Well, the Office of the Actuary in the Centers for Medicare and Medicaid Services recently put out its annual projections of national health care spending. And, contrary to the President, the actuaries find that Obamacare will dramatically increase the near-term growth rate of health care costs. In 2014, the actuaries find that growth in the net cost of health insurance will increase by nearly 14 percent, compared to 3.5% if PPACA had never passed. The growth rate of private insurance premiums will rise to 9.4 percent, from 5.0 percent under prior law: an 88% increase.”

For more, read Graham's study here.


Benjamin Domenech

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