As a follow-up to earlier posts on the so-called consumer protections included in the bills backed by Congressional leadership, a state level survey by America’s Health Insurance Plans (AHIP) offers additional analysis of the effects of regulation on health insurance premiums.
The AHIP report shows that the states with the three highest premium averages all require community rating and guaranteed issue. Of course, a range of other factors (such as demographics) affect the price of insurance, but these regulations do play a significant role in driving up costs. As the report explains:
…states with guaranteed issue and community rating rules tend to have higher than average premiums. Knowing that they could purchase coverage at any time, younger and healthier people may not do so in sufficient numbers to balance insurance pools. When this happens, premiums reflect the higher average costs of older and less healthy people, and people with low- or moderate-incomes may not be able to afford coverage.
In a new article in The American, Joseph Antos of the American Enterprise Institute and I argue that if Congress were to “up the regulatory ante” on private health plans by enacting such restrictive regulations nationwide it would stifle competition, leaving a new public plan with unfair advantages:
The uniform set of federal rules outlined in the [House health care] bill raises the cost of insurance and dampens, rather than enhances, the scope of competition in the market. Worse yet, what competition is left between the public plan and private insurers would not be fair.
We go on to write:
By the very nature of its ‘public’ status, that plan would have serious advantages over its private competitors. Because it would be backed by the federal government, the public plan would be viewed by many consumers as safe and secure. Individuals could trust the public plan to ‘be there for them when it counts.’ The plan would benefit from billions in federal subsidies not offered to private plans. At first, there would be federal ‘seed’ money to force the public plan into established insurance markets. Later, Congress could be counted on to prop up the public plan if it faltered. The plan would be too important to fail regardless of the debt it accrued, since failure would mean millions of people losing coverage from a highly visible government program.
The Obama administration and Democrats are selling their health reforms as “consumer protections.” But these “protections” are actually new rules that would limit consumer choice, reduce private sector competition, and inflate insurance costs. And, making matters worse, at the end of the day, the rules would be rigged to favor the public plan.