Without Competition from Public Option, Massachusetts Battles Private Health Insurers

In Massachusetts, which has previously implemented a health care system very similar to the one that will be created by the new health care law, their exchange is in a serious fight with the private health insurance companies over premium increases. The state division of insurance recently rejected the vast majority of rate increases proposed by the insurance companies. In an escalation of the fight, almost all of the insurers in the state stopped offering new coverage on the exchange.

After the Friday ruling denying insurers the rate hikes they wanted, insurers began calling the Commonwealth Health Insurance Connector Authority — an agency created by the state’s 2006 health care law to help uninsured residents sign up for coverage — to ask whether they could keep posting the rates that were turned down, according to agency spokesman Dick Powers. The proposed new rates had been added to the Connector website before April 1 with the expectation they would take effect on that day.

Murphy asked Connector officials to remove the posted higher rates and request that insurers recalculate them in light of the rejections. That left only one company, CeltiCare — a new insurer starting coverage in the Boston area this month — quoting rates on the Connector site, www.mahealthconnector.org.

Some insurance companies also stopped quoting policies through other brokers or intermediaries, while others continued to sell products with rates that had been rejected, telling customers they would be refunded the difference if the state’s rulings were upheld in court.

Clearly, this is a serious problem. It points to the real bug (or, for the insurance industry, an added feature) in the new health care law that allows insurance companies to continue to sell insurance in the individual and small group market outside the exchange. Just like in Massachusetts, I don't doubt for a second this will be a big tool to game the system and undermine the regulatory power/authority of the new state-based exchanges.

Too big to expel

I think what is happening in Massachusetts also validates my belief the a public alternative is critical to making the new regulatory system work. I don't think the private insurance companies would have taken the bold step of refusing to sell on the exchange if there was a viable public option to grab more and more market share each week the insurance companies continued their temper tantrum. It would have also served as a baseline to help prove if the rate increases were excessive or justified.

Many supporters of the bill have pointed to the ability of exchanges to expel insurance companies as a tough new regulator tool. Right here we are shown the inability to effectively use that tool without a public option. Most states have highly concentrated insurance markets. In those states, you can't expel the insurers because that would leave you with basically no options for people on the exchange to get coverage. How can you expel Blue Cross Blue Shield of North Dakota, which has 91% of the market, from the North Dakota exchange?

It is even possible that the technical ability to expel bad insurance companies from the exchange could, without a public option, create a strong incentive to speed the general trajectory of greater market concentration. It would seem the goal of many insurance companies would be to get “too big to expel.” (For a taste of things to come, look at how the "too big to expel" phenomena recently benefited the drug maker Pfizer.) And without an all-payer system, it will be extremely difficult to start small new insurance companies because it can't negotiate decent rates with networks and providers.

Note the issues that they are currently having with health care in Massachusetts--because they will soon likely be the same issues we need to deal with writ large. Since Democrats decided to only use private insurance companies for their reform plan, we will be fighting these near worthless, but very powerful, middlemen in hundreds of small battles in every state.