Forced Lower Premiums Force Insurers out of the Market

Obamacare proponents often point to the recent health insurance rate review “reforms” to show that health insurers are charging consumers too much and that—with a little government regulation—insurers can be made to reduce their premiums to “reasonable” levels.[1]

At a recent congressional hearing, Dr. Scott Harrington, Professor of Healthcare Management Insurance and Risk Management at the Wharton School of the University of Pennsylvania, responded. Dr. Harrington pointed out that while there have been no studies on the effects of rate review on health care, there have been studies on other types of insurance such as workers’ compensation and automotive.

You can have environments where an insurance company in an environment of rapid claim cost growth will ask for [a] 10 or 15 percent [rate increase], in a politicized environment maybe they can negotiate a rate increase of 8 or 9%. That can go on for a period of time. It reduces the companies’ incentive to write new businesses, it reduces their incentive to provide good quality, it reduces their financial strength, but it cannot persist.[2]

On the claims that rate review has had an impact on premiums in Massachusetts, Dr. Harrington had this to say:

But I don't think we can look at anecdotes for what happened in Massachusetts, for example, because in the short run companies will take a rate increase less than the actual rate of projection if the alternative is enormous legal fees, chaos, or having to leave a marketplace.[3]

1 For example see PPACA'S Effects on Maintaining Health Coverage and Jobs: A Review of the Health Care Law's Regulatory Burden: Hearing before the H. Energy & Commerce Comm. Subcomm. on Health, 112th Cong. [hereinafter PPACA Regulatory Burden Hearing] (June 2, 2011) (statement of Ethan Rome, Executive Director, Health Care for America Now) (available at http://republicans.energycommerce.house.gov/Media/file/Hearings/Health/060211/Rome.pdf).
2 PPACA Regulatory Burden Hearing, supra note 1 (June 2, 2011) (testimony of Edward Fensholt, Senior Vice President, Lockton Benefit Group) (available at
http://energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=8651).
3 Id.