Federally Funded Rate Review Saved Less than One Percent of Premiums — At Most
The U.S. Department of Health & Human Services (HHS) has produced a report cheerleading the results, so far, of the $250 million it is giving to states to impose “rate review”. The results are underwhelming: $703 million dollars cut from $110.5 billion of premiums last year. Because it comes from a self-congratulatory press release, this reduction of less than one percent of premium must be the best estimate they could get, after strangling the data until it confessed to something.
Why so small? Rate review is the polite term for political inquisition of health insurance premium changes. The federal government did not used to get involved in this. Under Obamacare, HHS has decided to question premium hikes of 10 percent or more, and subsidize state insurance regulators who have the power to roll back premium hikes.
However, such premium hikes are justified under Obamacare regulations, and regulators know it. In the individual market in 2013, the average rate hike requested that was 10 percent or more was 18.4 percent. After review, increases were whittled down to 16.9 percent, on average. There was a little more impact in the small-group market, where requested increases averaging 14.4 percent were knocked back to 11.6 percent. Nevertheless, it is quite clear that a 10 percent limit was not reasonable for these plans.
Although politically appealing, giving politicians the power to approve health insurance premiums does not reduce increase, as I concluded in a 2011 study:
There is no evidence that prior approval of premium increases has protected consumers from rate hikes. Examining data on premiums and premium-review laws for small-group premiums in 37 states in 2008 and 2010, 16 states allowed health plans simply to file their new rates and then use them, 18 required prior approvals of rate changes by the Insurance Department, and three were unregulated.
The median increase over the period was 22 percent for the file-and-use states and a slightly lower 17 percent for states requiring prior approval. The highest increase in the file-and-use states was 50 percent (in Tennessee) but the highest in the states which required prior approval was 68 percent (in Washington). Utah, the only state which experienced a reduction in rates, is a file-and use-state. Furthermore the three completely unregulated states had the lowest median rate increase, 14 percent, and none of the three was a wild outlier like Tennessee or Washington.
Needless to say, the rhetoric featured in the report’s conclusion is overtly optimistic.
They need to justify their existence!
If you want to keep premiums in check, remove all subsidies — employer and exchange. Cost-conscious customers is by far better to keep prices down than bureaucrats.
“Cost-conscious customers is by far better to keep prices down than bureaucrats.”
I agree wholeheartedly, but being cost-conscious in the consumption of health care may not be a realistic endeavor. Perhaps price-conscious would be a better way to address it, but the underlying issues of information remain.