It is commonly known that last July, Health Care Reform became Health Insurance Reform. This put insurance carriers directly in the crosshairs of the Obama administration. So why would Blue Cross of California and other carriers around the country risk the criticism of the public and the administration by seeking double digit rate increases. Simply – it’s because they have to.
I am not going to spend the time here to discuss how this is being played out by critics and the media. Suffice to say that there has been a great deal of sensationalism by these constituencies without having the facts. The truth is, we are talking about complex matters like rating pools, adverse selection, risk adjustments and other inter related actuarial issues that carriers can clearly defend.
So again, why would they risk the uproar that has been caused? Part of the answer lies in the auto and banking industry; examples of how the current administration’s solution to their financial losses was to take them over. So, with continued rising health care costs, what choice did these carriers have? Raise rates or risk a government takeover. So they put their customers and shareholders first. Isn’t that what they are supposed do?
One of our regular readers to this blog recently commented that blaming the insurance carriers for the cost of health care was like blaming a waiter for the price of the meal. Don’t blame the messenger. If you look at both the Senate and House bills, they are talking about limiting medical loss ratios to between 85% and 90%. If 85% of insurance premiums are tied to cost and utilization, why aren’t we reforming that piece first? On a positive note, there has been some talk in the last few days of adding some cost containment measures to any proposed legislation. In fact, media coverage on the west coast, as well as a special series on CNN has been entirely focused on the cost side of the equation. For Obama, it may be too little, too late.
Obama has called for an up or down vote to occur soon. What gives him the hope that this might work? Is it the uproar over these rate requests? This is a difficult avenue to pursue. Just as Democrats are beginning to break ranks as mid-term elections get closer, Republican resolve is becoming even stronger. CNN’s report showed that $1.2 trillion of health care spending in the US is wasted. About 50%. The Congressional Budget Office has estimated that this number is as high as 30%. So, without true cost reform, will politicians risk their careers on a “partial” or “misguided” solution?
Meanwhile, Blue Cross of California has agreed to postpone the individual rate increases by two months to allow the California Department of Insurance to review the increase, despite the fact that these rate increases are actuarially-sound and in full compliance with the law. This is a generous gesture on their part. Don’t blame the messenger!