Health insurance: Federal prior approval on its way?

Fearing nasty insurers making – gasp! – profits, the Senate starts down the road to a two-layered prior approval process. Basically, if a state doesn’t approve rates in advance, the feds will.

The Senate’s actions aren’t that big a surprise, as regulating health insurance rates was part of the HCR package. Check the last item under “Insurance” on Page One of this handy HCR timeline.

This helps achieve the laudable goal of full employment for actuaries, as it creates an incentive for states that don’t have prior approval to implement it. Of course New York is already considering prior approval but has met some headwinds, via a Milliman report that indicates that prior approval really doesn’t hold rates down. And Iowa basically played “Wait A Second” with Wellmark’s 2010 increase – approving an increase, then rescinding it when the public balked, then reinstating it. I guess that should keep Wellmark’s back office hopping.

In my experience, prior approval didn’t hold rates down so much as reduce their variability. An insurer is reluctant to take a rate decrease in one year because it might not be able to get a rate increase the next year, even if one is warranted. The result is to make rates slightly higher over the long run, at least in theory. The insurer is forced to absorb more risk (the variability that is removed from the consumer’s rates), and it will get compensated for doing so.

Now I know it’s easy for congressmen to beat on insurance companies, but I think they might get a little more buck for their bang looking at hospital oligopolies. California found that hospitals that dominate a market squeeze extra money from insurers.

In Northern California, most hospitals now belong to large chains with the market power to largely dictate prices, according to researchers hired by the California HealthCare Foundation.

According to The [Sacramento] Bee’s analysis, Sutter [Health] hospitals have obtained better reimbursement rates from insurance companies than any other provider in the region.

As one of the region’s largest systems, Sutter Health is a “must have” provider in an insurer’s network because of its reputation among consumers, said William Sandberg, Executive Director of the Sierra Sacramento Valley Medical Society. Sutter Health leverages that power during negotiations, he said.

And in a more rigorous study on the other side of the country, Massachusetts found the same thing. Its report gets a nifty summary from Mother Jones’ Kevin Drum.

From my soapbox, I sing that the entire health care system is bloated and concentrating your energy on a single part of it won’t accomplish much. The solution lies in tackling every area of the system, not just insurance.


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