The first wave of health care reforms will target insurance companies, but it's hard to see whether whether they -- or the customers -- will win or lose in the short term.
Factors that might provide upward pressure on insurance prices include new insurance industry fees, new insurance industry regulations (companies will be barred from rescinding care from sick customers, discriminating by gender or denying coverage based on a pre-existing condition), and a new rule that insurers can't cap lifetime benefits. On the other hand, another rule requiring insurers to spend at least 80 cents of every premium dollar on claims should restrain the growth of prices. On top of all these changes, health reform injects 30 million new customers -- many of whom will pay more into the system than they take out because they're young and healthy -- which could bring down the average cost of insurance for everybody else.
As the Washington Post's Alec MacGillis explains, health insurance might increasingly resemble a public utility: a larger base of customers, with lower profit margins and stricter rules. But the insurance companies still have six to nine months to live free of health reform's regulatory straitjacket. What will they do?
In the next few months, one could make the case that insurance companies might jack up their prices before the government regulations kick in at the end of the year. I called around to figure out whether customers could expect higher premiums, but the policy analysts I spoke to acknowledged they basically don't know what's going to happen.
"Do you want to have your head be the single one above the foxhole to get shot at? No. On the other hand, you have a problem with going out of business," said Thomas Miller, AEI scholar and former senior health economist for the Joint Economic Committee. In the long-term, Miller said we could see some mergers among insurance companies. In the short term, "I would not expect sizable price hikes or low-balling. Some people think they'll make it up on volume. Others think the medical loss ratio will hurt. To all of this is the simple answer is: we'll see."
"There are basically two factors," added Paul Fronstin a senior research associate with the Employee Benefit Research Institute. "On the one hand, 30 million new people entering the market who are healthier should bring down premiums when we force them to buy coverage. The flip side is these new fees on insurance companies that drive up the cost of care." Fronstin said the factors on both sides of the seesaw are too even to predict whether prices will rise dramatically.