Thursday, December 23, 2010

Opening our "Holiday" gift from the Elves at HHS

HHS has unwrapped its latest “Holiday” gift to the public – a spiffy new regulation in which HHS confirms, once again, its intention to ignore the rising cost of medical care in the United States.

Instead, HHS will require that health insurance companies “disclose and justify any rate increases of 10 percent or more.” The New York Times further notes, “The proposed rule represents a major expansion of federal authority in an area long regulated by states.”

For several reasons, I think the bigger picture is - this is good news. Because HHS has once again underestimated the intelligence of the American public.

First of all, the immediate effect will be to increase the cost of insurance, not reduce it. HHS will spend more money regulating, and the industry will spend more money responding to regulation. There will be few meaningful premium reductions - on the contrary, premium increases will be larger. (More about this below). You will pay for these higher costs thru your taxes, thru lower wages, thru the prices of products you buy, and of course thru your insurance premiums. Only Washington DC claims to save money for the taxpayers by forcing them to bear more cost. And isn't it always "for the taxpayers"? (Probably the same principle at work here as last year’s splendid federal insight that PPACA reduces the cost of medical insurance in part by taxing insurers an additional $60 billion annually.)

Anyway, here is a CORRECT insight: the rising cost of medical care explains almost 100% of rising medical insurance premiums. Check the numbers here, in Table 12, Lines 1 and 2. The increase to premiums year over year, and over many years, tracks exactly with the increase in the cost of medical benefits paid. That’s a fact.

The public does not understand this fact; mainly, I think, because the media have chosen to hide it; and the political classes pretend they don’t know about it.

However . . . the rate reviews now required by HHS will generate a great deal of public discussion that will be centered on this fact. Public discussion means no more hiding of the fact, no more pretending it doesn't exist, no more excuses not to know it.

In this way, the public will discover the correct insight that the underlying problem is the high and rising cost of medical care in the United States.

This correct insight won’t be easy to ignore, because there will be rate hearings every month, perhaps every week. Why? Because almost every insurance rate increase for every company will be higher than 10%. Why is that? Because the current trend in the cost of medical benefits paid is about 9%. And, as Table 12 linked above shows, insurance premiums follow the medical costs.

If the rate for 2011 is $100, one might expect that the rate for 2012 will be $109. And maybe it will be. But premiums are based on the actual medical benefits paid by the policies. If actual benefits paid exceed the estimated costs, the following year’s premiums will have to increase more than the base trend. Remember employers have found that PPACA will increase their 2011 medical benefit costs by 2% to 4% - - despite HHS hysterical blustering to the contrary. So the base trend rate will be higher than 9% meaning that for 2011, 2012 and on into the future, premium increases of 10% and more are likely to be common.

And, btw, incessant rate hearings will also remind people in every state what a fraud the government has perpetrated in claiming to have "reformed" health care. All the government has done is attempt to slap price controls on insurance. That does not come close to reforming the delivery of medical care so that it will cost less.

I am not talking about reducing the incomes of physicians. I think physicians earn their incomes. I'm talking about changes in the delivery system that will reduce their COSTS, so they can reduce their fees and still maintain their incomes. I’m talking about changes in the delivery system that will relieve hospitals of some of their COSTS, so their charges don’t need to be so high.

I’m also not talking about subsidizing insurance. All insurance subsidies do is pour oceans more money into a system that has not shown the will or the ability to restrain its own costs. That is no solution. In fact subsidizing costs makes the cost problem worse. It’s running thru Hell in gasoline pants. Unfortunately, it’s all our government has shown that it knows how to do.

Most other developed countries, and many developing countries, deliver medical care of comparable quality to the U.S. at substantially less cost. We need to understand as a nation how they do this, and a national debate will help meet this need. The rate reviews required by HHS will, I think stimulate just this sort of national debate. That is clearly not the outcome HHS expects. To which I say, good !

So, yes, please - - it's high time the public begins to understand that our insurance is expensive because medical care is expensive; and that our insurance premiums are rising because the cost of medical care is rising.

The cost of medical care is the problem that must be addressed. HHS is not doing it.

So I say, let the rate reviews and the debates begin. And I say, the sooner the better.
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