The Administration Puts More Pressure on Insurers

Health and Human Services is once again playing freelance actuary, demanding that the health insurers hold down increases in the premiums for their Medicare Advantage plans.  As far as the administration is concerned, this is a two-fer.  When people have to pay more for their insurance, they tend to ask what the hell good this gargantuan new health care bill is doing--not the question you want them asking as they head to the polls.  But in the case of Medicare Advantage, there's another benefit.  The health care reform bill mandated a substantial cut in payments to Medicare Advantage providers, which everyone expects will translate into cuts in the extra services that Medicare Advantage plans now provide.  If they make those cuts a year early, maybe the administration gets to claim that the cuts don't have anything to do with the new health care bill.

Of course, for the insurers, it's not such a good deal.  The administration doesn't seem to have offered any evidence that insurers are overcharging; basically, they're saying that they ought to underprice their product, even if that means losing money.  Which is what has happened in Massachusetts, where the state insurance regulator refused substantial rate increases, even though as far as I know they never found an actuary to sign off on their orders.  The insurers posted big losses shortly thereafter.

Health insurers aren't like other types of insurers, who use premiums to amass gigantic reserves against which they pay only a small percentage in claims in a standard year.  Health insurers act more as a middleman, funneling money from individual or employer to the doctors and hospitals with whom they've bargained.  Whether this is a good system or not is an issue for another post, but it means that there's not as much play in premiums as you might think.  There's some--the firms do have substantial reserves, for understandable reasons--but it's not clear how long those reserves can fund a string of state-imposed losses.

More to the point, there's no particular reason insurers should go along with this; it's bad for them to exactly the degree that it is good for the administration.  The statement put out by AHIP doesn't sound particularly conciliatory.

Welcome to the future of news:  quibbling about health insurance rates.  Anyone who's ever mourned that we're not more like Europe . . . well, this is what Europe is like.  The health ministry is usually a more important post than defense.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

The Blacksmith: A Short Film About Art Forged From Metal

"I'm exploiting the maximum of what you can ask a piece of metal to do."

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Video

Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."

Video

An Ingenious 360-Degree Time-Lapse

Watch the world become a cartoonishly small playground

Video

The Benefits of Living Alone on a Mountain

"You really have to love solitary time by yourself."

Video

The Rise of the Cat Tattoo

How a Brooklyn tattoo artist popularized the "cattoo"

More in Business

Just In