Massachusetts Rejects Small Business Health Plan Rate Increases

Massachusetts’ Division of Insurance has rejected  the lion’s share of proposed small group rate increases from the state’s largest nonprofit insurers – citing new regulations  requiring justification for rate increases in excess of medical inflation.  The state has long had the authority to deny proposed rate increases – and this is the first time it has done this.

Some of this is politics – Governor Deval Patrick’s likely Republican opponent was a CEO of one of the health plans – and this is an opportunity for Patrick to score ‘easy’ points against the health insurance industry, which is an easy target.   National health care reform considered this approach, at which point Karen Ignani  of America’s Health Insurance Plans said

“Regulating premiums won’t do anything to reduce the soaring costs of medical care. This would be like capping the prices auto makers can charge consumers, but letting the steel, rubber, and technology manufacturers charge the auto makers whatever they want.”

Will this move by Massachusetts regulators lower costs?

Probably not.

The idea is that the health plans, with no ability to pass on cost increases, will do a better job in negotiating fee schedules with providers, and will improve their existing medical management capabilities.  However, provider rates are already locked in –and health plans have long since implemented the medical management programs with the largest potential to decrease cost. 

What else can health plans do? 

They can change benefit design – but it’s too late to do this for April, 2010 accounts. (Most small businesses have an April 1-March 31 health plan year).  Beyond that, they can take a loss on the small business portion of their portfolio, and take this out of their reserves.   However, the Division of Insurance which has rejected these rate increases is also responsible for being sure the health plans have adequare reserves.  These two goals are likely to come into serious conflict over the next 12-24 months.

Lowering the cost of health care delivery will require more than an emergency regulation allowing the Division of Insurance to freeze health plan rates. 

Selling health insurance across state lines

Ezra Klein blogs today about why letting insurers sell health insurance across state lines is a terrible idea - using the model of what happened when South Dakota offered to let the credit card industry "write the regs" and many credit card companies moved to that state.  He's done a pretty complete job in recounting the cons -  we would likely have a small, economically distressed, conservative state dictating our health care coverage, and while costs would go down for healthy people, they would go up for those with illness.

I have one item to add to Klein's litany of concerns.  It's been a long time since a sizable health insurer went bankrupt, but this used to happen with some frequency.  State regulators insist on adequate rates of capitalization, so that if an insurer become insolvent those who already paid for coverage would not be left in the lurch. Local regulators also have the leverage to force other regulated plans to have an unscheduled open enrollment for members of a failed health plan.

It's politically important for the New York Attorney General to be sure that New Yorkers are not shut out of health care coverage.   The Alabama Attorney General might not feel that protecting New Yorkers is as much of a political necessity!

Advocates of selling insurance across lines say that this would increase competition.  However, it would increase the wrong competition - competition to attract the healthiest beneficiaries.  It would not increase competition to actually improve the cost-effectiveness of health care.

Rush Limbaugh Endorses Health Reform

Not really.

But he did note, upon his discharge from a hospital in Hawaii where he was evaluated for chest pain, that he got the best health treatment in the world “right here in the United States of America.” 

Actually, Rush Limbaugh got his care in a very unusual state indeed. Hawaii is second in the Commonwealth Fund’s ranking of the 50 states (and the District of Columbia.)

Hawaii is different than the rest of the United States.  It has great weather, is geographically isolated, and has never had much heavy industry.  It also has an unusual health care system - one that has many elements that are similar to those being proposed as part of national health care reform.

 Here are some of the unusual elements of health care in Hawaii.

1) Hawaii was the first state to enact an employer mandate in 1974 - and has one of the lowest rates of uninsured in the country. 

2) Hawaii has expanded Medicaid eligibility substantially. Again, this lowers the rate of the uninsured

3) There are two dominant nonprofit insurers in Hawaii, The Hawaii Medical Service Association (HMSA--a Blue Cross plan) and Kaiser Permanente. The employer mandate explicitly requires coverage at least as generous as those plans offered by HMSA and Kaiser – just as proposed national health care reform would mandate minimum credible coverage.

4) Kaiser Permanente cares for 20 % of the nonelderly population of Hawaii.  This salaried, integrated staff-model health plan has a world class electronic medical record system, which facilitates collaboration among its primary care physicians and specialists.  Regions with large penetration of Kaiser tend to have low costs (compare the costs in San Francisco with those in Los Angeles, for example)

5) Hawaii regulates its health plans strictly, prohibiting excessive or discriminatory rates, and allowing the insurance commissioner to wide latitude to impose financial penalties on health plans that violate its regulations.

6) Hawaii has among the lowest Medicare costs in the country (but very high overall quality).  I'm attaching a graphic from Health Affairs (researchers from Dartmouth and now HSPH) showing this.

So, with an endorsement of the health care system of Hawaii – Rush is in favor of many of the elements of the Senate health care reform bill that he has railed against.

(I couldn't resist posting on Limbaugh's comments.  I'll be posting part 2 of my New Year's observations tomorrow)