Ain't Nothing Free In Health Insurance, Part 2...

A few weeks ago, I gently chided Robert Pear of The New York Times for touting the introduction of "free" diagnostic screening tests as part of the new federally-mandated health insurance plan. Coverage which isn't subject to deductibles and co-pays isn't free; it's just being paid for in a different way.

An article in the Wall Street Journal last week demonstrated how the "free benefits" chicken have begun to come home to roost. The article is here http://finance.yahoo.com/insurance/article/110602/health-insurers-plan-hikes?mod=insurance-health. It reports that insurers are raising prices between 3.4 and 9 percent above their average planned rate increases to cover the cost of new benefits mandated by the insurance reform measure which have already been, or soon will be, effective for individual and small group consumers.

Those benefits include the elimination of "lifetime caps" on insurance coverage, elimination of pre-existing conditions exclusions for children, continuation of family coverage for dependent children up to age 26, and elimination of co-pays for diagnostic and preventive care.

There have been the expected expressions of outrage from The White House and consumer groups, who accuse insurers of using reform as an excuse to gouge customers. What the situation really illustrates is that any promises of greater access to coverage for more people, expanded benefits AND cost reductions are...well, a misstatement...and one Democrats don't need in advance of the November elections.

There IS a legitimate issue regarding HOW the additional rate increases are being calculated. There are suggestions that insurers are padding their rates excessively; insurers react with shock and horror.

Here's the real story: Insurers are like the house in Las Vegas; they never lose, because they're playing with your money. Insurers ask their actuaries to calculate the cost of these additional benefits, and the actuaries respond with an estimate which is as conservative (that is, favorable to the insurers) as possible.

And most states don't have the expertise or wherewithal to review these estimates. Insurers conceal their formulas as "trade secrets" to protect them from oversight. And most states' insurance departments have as their principal charge the protection of insurers' financial solvency, not consumer protection. So all insurers must do is say "we need these rates," and insurance departments have no choice but to say "okay."

Problem is, if their estimates are wrong...that is, if those rates are overstated...there's no mechanism for going back to recapture the overage and return in to consumers, whether directly or in the form of premium reductions or adjusted renewal rates. If the insurers guess high, and are wrong, they get to keep the money.

As is the case with most issues related to health insurance, the big need in the small group and individual health insurance markets is for someone on the consumers' side knowledgeable enough, and powerful enough, to challenge these rating assertions and negotiate something fair and accurate. Will exchanges play this role? Will state regulators? The federal government? Absent some smarts and power on the purchasers' side, consumers will continue to face "take it or leave it" pricing propositions, insurers will load rates to assure a very hefty profit, and health insurance rates will continue to increase at a rate up to three times the rise in actual health care costs.