Free Markets, Free People

The war on health insurance companies is indicative of the government’s greed for power

The Democrats are bound and determined to demonize the private health insurance industry and use that demonization as a basis for further control by government.  Seizing on one insurance company’s rate increase in California as a reason for government intervention the House has passed a piece of legislation in the House to remove the industry’s anti-trust exemption.  That’ll teach ‘em (and by the way, the vote was 406-19 so a whole heck of a lot of Republicans have bought into this again).

The White House, of course, backs the bill claiming:

The repeal of the antitrust exemption in the McCarran-Ferguson Act as it applies to the health insurance industry would give American families and businesses, big and small, more control over their own health care choices by promoting greater insurance competition.

But will it do what the White House says it will do. Most likely not:

The Congressional Budget Office concludes that repeal “would have no significant effects on either the federal budget or the premiums that private insurers charged for health insurance.” University of Pennsylvania economist Scott Harrington says, “This is just barking up the wrong tree…It might sound good, but I can think of very few things …that would be less consequential for consumers of health insurance.” Professor Austin Frakt of Boston University notes, “Repeal of the exemption is popular, but like a lot of things done in anger, it isn’t particularly wise and won’t be very effective.”

In essence this is a political temper tantrum of the type where bad law is usually made. It’s not clear that this particular law will have negative effect, but it is apparently not going to do what the White House claims.  But it will accomplish one thing – increase the power of the federal government.

To understand that, a little background concerning the exemption might be informative:

In 1944, the Supreme Court overturned prior case law and held that the antitrust laws should apply to insurance.

Congress responded with the McCarran-Ferguson Act, which created a limited exemption from federal antitrust law for the “business of insurance.” To qualify for the exemption, each state had to engage in oversight of its insurance market. States responded by creating insurance commissioners and regulating insurer conduct.

The logic of the exemption was that prior to 1944, insurance had been regulated by the states anyway. No one felt any compelling need for intrusion by the federal government, or to allow private litigants to bring federal antitrust suits against insurers. In addition, insurers — particularly smaller insurers —can more accurately price risk if they can share information on their actuarial experience. The exemption created a safety zone for insurers to share information free from the threat of private antitrust suits.

McCarran-Ferguson still left insurers subject to state regulatory oversight and federal antitrust scrutiny for matters that don’t involve “the business of insurance.” Contrary to Sen. Reid’s claim, the federal government already scrutinizes mergers for anticompetitive consequences, and has brought several challenges.

The point of the exemption was to actually help make the industry more competitive. Sharing “actuarial experience” will now be an anti-trust violation. Additionally, private litigants will now be able to bring federal anti-trust suits against insurers – if this passes the Senate.

So when the White House continues, saying:

The repeal also will outlaw existing, anti-competitive health insurance practices like price fixing, bid rigging, and market allocation that drive up costs for all Americans. Health insurance reform should be built on a strong commitment to competition in all health care markets, including health insurance.

It’s describing what was formerly considered to be “the business of insurance.” Now it is “price fixing” and “bid rigging”. And most disingenuous of all is the claim it will spur competition.

So what will this do?

Insurers fear that losing the exemption would force them to deal with an additional (federal) regulator and expose them to private federal antitrust suits. State insurance commissioners also want to keep the exemption, because they prefer to remain the dominant regulator. On the other hand, federal antitrust authorities want to scrap the exemption because they don’t like exemptions — although they don’t seem to be claiming that repeal would result in greater competition.

Then the point of the bill is to increase what? Federal regulation. More federal control of the private health insurance industry that states have always regulated. This isn’t about competition, “bid rigging” or “price fixing”. This is about gathering more power at the federal level.

The excuse is this “greedy” insurance company in California (btw, the health insurance industry’s profit margin is 35th among all industries at 2.2%) that is raising premiums.

But what most don’t seem to understand is there are different types of greed. And one of them is a greed for power. That greed has been on display for years, and intensely so for the last year, within the federal government. This bill is nothing more than another manifestation of that greed.

~McQ

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23 Responses to The war on health insurance companies is indicative of the government’s greed for power

  • I can’t agree. While it’s true that this is intended as a power grab in a fit of pique, it’s also a necessary step if we are going to allow insurance to be sold across state lines. In order to do that, we have to move regulation from the state to the federal level. The trick is to eliminate the state regulation and replace it with Federal regulation, not to keep both.

    • You are correct if, as you suggest, the states and the feds work in tandem to federalize regulation, at least that part concerning activity across state lines.  The current measures do not even remotely approach such considerations.  This is, both in intent and in effect, “power grab in a fit of pique”.  You can be guaranteed that the outcome will be uniformly bad for everyone.  CPSIA anyone?

    • I doubt that this is being done as a precursor to allowing insurers to sell their services across state lines.  I believe that it’s being done as a way of hurting health insurers and making them less effective, as a means of promoting the “need” for a public option that would eventually become the only source of health insurance.

    • States are authorized by the Constitution to make compacts – that does not require federal intervention to sell across state lines.

  • Regarding this issue, I believe that it is helpful to examine the context of the “greedy” rate increases being imposed by the insurance companies.  I have no inside knowledge on these increases, just my many years of study and work in the insurance industry.  However, when times are hard and when consumer spending is problematical, younger and healthier consumers tend to discontinue their purchase of health insurance or to change to types of coverage that have a lower premium (higher deductibles, less broad coverage, etc.).  Older and sicker consumers maintain their broad, low-deductible coverage.  As a result, the covered pool of risks incurs a much higher percentage of claims – leading to a need for an increase in the average premium paid by all those remaining in the pool.  This occurs as a direct result of the numbers, without any decision being made by the insurance executives and regardless of any cost increases for medical care.
    If the premium increases being batted about by the Obama administration are simply the result of this accounting process (and a simple telephone call to the insurance company will verify if this is the case) what does that say about the administration’s characterization of the insurance companies being “greedy”?  Are the companies not simply trying to stay in business to serve those remaining covered by their policies?
    Once you understand the relationship between the makeup of the insured pool and the average premium required to insure them, ask yourself if any of the Obama administration spokespeople mention that they have verified that the rate increases they are highlighting exceed those produced by higher medical costs, changes in the insured pool and simple accounting.  Do these spokespeople  mention having contacted the companies involved?  Do they mention any justifications that might have been offered by those companies for the increase?
    Are these protests about insurance company greed real or are they merely another version of the “Big Lie” propaganda technique practiced once again on voters by politicians?  I don’t know, but I have my suspicions.
    And there is always Common Sense.  You’d have to be a really dumb insurance executive to believe that now is a good time to increase your profit margins above the level of  increase required to maintain current profit margins.  Actually, you might think it is a time to trim those margins (and overhead) to limit premium increases.  Just sayin’.

    • “However, when times are hard and when consumer spending is problematical, younger and healthier consumers tend to discontinue their purchase of health insurance or to change to types of coverage that have a lower premium (higher deductibles, less broad coverage, etc.)”
       
      Exactly, and that’s why we must punish those young fools via penalties for dropping out of the system!  Furthermore, we’ll have to tell a white lie about their dropping the coverage, and imply that it wasn’t a choice they made to spend their money elsewhere, but was in fact because they couldn’t afford coverage.  So it wasn’t a choice between a new Prius and/or an HDTV(to comply with the government mandated switch over from analog….just sayin……) and health coverage, no, it was simply the greed of the insurance companies that kept them from getting insurance at all!  This of course is a necessary prevarication, otherwise people might get comfortable thinking their money is their money, and not the government’s money for needed programs.
       
      But it’s a good white lie, because they really SHOULD have coverage, and by thunder, if they’re too stupid to realize that, we’ll punish them by taking their money anyway!…oh, sorry….well it’s for their own good.

  • Note that the overhead of insurance companies is very high — high salaries, plush buildings, expense accounts, bonuses and the like.   This doesn’t even include profits.   It’s about 30%, while Medicaid overhead is very low, I believe around 1%.   Also, when insurance companies refuse pre-existing conditions, find ways to deny coverage to people who thought they were covered (which happens a lot) and imposes lifetime limits, then it’s easy to see them as evil.  They are in it for profit, the people are irrelevant.   And that’s a core problem with those who put forth market capitalism as a kind of ersatz religion.   Markets are very good to bring innovation and flexibility, but in core human rights (and I believe we should make health care a right in wealthy industrialized countries), markets are cold and soulless.
    So they either have to be regulated, controlled or taken over.   I believe regulation is important, and the government may need to step in if the market leaves many people unable to get insurance or who are denied coverage even though they had it.   To do otherwise and condemn people to financial ruin or lack of health care would be inhumane — even if rationalized by the religion of capitalism.

    • “Note that the overhead of insurance companies is very high — high salaries, plush buildings, expense accounts, bonuses and the like.” – oh, yeah, I understand….just like the Senate, the House, and numerous other government agencies…..

    • A right?  Then how about a right to a house?  A Job?  A small summer cottage on Lake Winnipesaukee?  A boat, would you like a boat?  I mean, you’ll need a boat to go along with the cottage, otherwise it would be nearly criminal, almost a violation of your rights,  to have a place on the lake and not able go out on it….
       
      Wow, it’s cool how you found a ‘right’ to someone elses labor and property there Scott (health care professionals).  I’ll be sending you my bill since I’m comfortable I can eventually convince myself I have a right to some of your earnings in some way, shape, size or form.

    • Boy, Scott, you’ve lost ground again. They’re giving you talking points recycled from the 1930s. “Religion of capitalism?” If that’s a religion, Scott, you need to get baptized.

      If overhead is too high (and no one not confined to a mental institution would take it on your say-so), then the very thing that would bring those insurer costs down and in turn lead to competitive prices for insurance products is, you got it, market competition.

      Which is why about the only thing that should be done to reform medical insurance is to have a free trade zone for it in the U.S.

      Don’t you think that would be a good idea, Scott?

      More competition.

      • …no one not confined to a mental institution would take it on your say-so…” is absolutely spot on.  The ‘ Joy Behar “Settled Science” expert’ has quoted misinformation picked up in the faculty lounge bubble once again.
        The actual profit margin of insurance companies is around 2.2%, not around 30%, but, Hey, inside the Progressive bubble 30% will get one the head nods one is seeking a lot better than the truth (which does not carry a high value in faculty lounges – especially when it fails to support good Progressive thinking (see “Global Warming”).

        • This is embarrassing.  I commented above from memory of Professor Erb’s comment.  Later, I got to thinking…even Professor Erb couldn’t be that far off.  Sure enough, he said overhead, not profit.  Oh well…ever feel like you were right even when you were wrong?

    • Never mind the fact that the WHO (and remember Erb said they should be seen as an authority on health care systems) says that the U.S. has the best quality of health care on the planet AND the best access to health care of any industrialized nation. Bottom line  – People in the U.S. are getting better health CARE  than citizens of any other country.
      Anyone actually concerned about the people involved knows that health insurance is not directly tied to health care. A system that performs as well as Germany’s would mean 200,000 more deaths per year from cancer alone. People living in systems with government run health care are already condemned to financial ruin or lack of heath care. The poor get both –  financial ruin from high taxes and lack of health care. The rich can afford to leave the country for better treatment.
      Of course, that’s ignoring the fact that the U.S. supports far more medical research per capita than any other industrial nation. Any estimate for the number of extra dead by cutting ten percent from the world’s research budget so our system is more in line with other industrialized nations?

    • “It’s about 30%, while Medicaid overhead is very low, I believe around 1%”

      So why is Medicaid effectively bankrupt? And, as we now know, federal government salaries and compensation, aside from the relatively small number of executives, are higher than those in the private sector. 

      “when insurance companies refuse pre-existing conditions”
      Perhaps you should find out what exactly insurance is. Covering pre-existing conditions is welfare or charity, not insurance. For someone who claims to rely on science, you seem to know or care very litlle about actuarial science.

      ” They are in it for profit,”

      So what? So is Safeway, which is why they greedily price their food out of reach of those in need. Doesn’t every American have an inalienable right to a T-Bone?

      ” markets are cold and soulless.”

      Again, so what? So is science, which you claim to respect. You want warm and soulful, go to church. That is what religion is for. Free markets work at least as well as government as far as efficiently allocating resources, and protecting human rights are not a function of markets.

      “even if rationalized by the religion of capitalism.”

      So the religion of statism justifies using coercion to destroy markets and human rights when statists want to.

    • Scott, you are misleading again.  First, Medicare is not 1% overhead.  It buries a lot of expenses in the General Services expenses.  that includes things lime rent, heat, power, etc.  Second, there is a cost in doctors who won;t take medicare because the reimbursements are too low.  I suppose, Scott, you are aware that will either get a lot worse with a 21% reduction or the Democrats are lying be excluding that from the costs of their health care bills.  I vote for the latter.
       
      But, most of all, if you are going to compare Medicare and the insurers, you have to include the estimated $60 billion in fraud the Medicare ignores.  That dwarfs the profits of the top 7 insurance companies.

    • Scott, the rest of your post is also a jumble of inaccuracies.  Are you sure you actually work at a college?   If the insurance companies did not refuse preexisting or rate for it, the cost of insurance for everyone else would be a lot higher.  Do you actually expect the feds will find some way to handle preexisting that will be free?  The insurers do deny coverage to those who lied on their applications.  Is it your position that we should excuse or reward lying?  How would that work in college applications.  Is it OK there, too?  In every interaction with insurance companies, I have found them not only helpful, but interested in my getting every benefit to which I am entitled.  Is your personal experience different or are you just throwing out useless hyperbole as if it were fact.
       
      BTW, isn’t Medicare the largest denier of benefits of all insurers?  I believe they are.  So, somehow you are claiming the health care system will suddenly get “soul” when the government takes it over.  Their soul will probably rank right up there with the “soul” of the IRS.  Are you looking forward to that?
       

  • McQ… the vote was 406-19 so a whole heck of a lot of Republicans have bought into this again.

    Two thoughts:

    1.  Many members of Congress operate under the assumption that it’s not only easy (and fun!) to pick on certain people / industries, but also politically wise: “See how I’m taking on those evil (insert hated group here) for you?!!  VOTE FOR ME!!!”.  In the era of Tea Parties, however, a bloated, bankrupt, powerhungry government going after an industry that is OBVIOUSLY being used as a whipping boy might not be too smart.

    2.  It is a probably unintended but nevertheless useful outcome of enumerated powers that members of Congress, who can’t possibly be experts on everything and frequently aren’t experts at anything other than getting reelected and getting graft, are not supposed to be allowed to make a lot of laws or f*ck around with things that they don’t really understand.  I mean, after all: these clowns can’t even run the postal service without running up a mountain of debt!

    Just as one shouldn’t allow an angry three-year old to try to fix one’s broken cel phone, neither should (allegedly) angry members of Congress be allowed to… um… er… Gee, what SHOULD we allow them to do?  Work a sudoku?  Leave their office to take a wee?  Have sharpened pencils on their desks?

  • The odd thing about the Insurance industry’s profit margin stat is that while it is low, percentage wise, ALL of the companies on that list run a profit, all the time.
    What I’m kinda surprised here though, with the discussion of profit margins being all the rage and those evil, evil insurance companies is how the profit margins for the Pharm companies are not being discussed.  That industry is interesting in that they’re either running an insane profit margin, or losing their ass.  The average of which makes the industry as a whole’s profit margin look a bit more reasonable, but still good enough to have them in the Top 5.

    • Profit is always a great propaganda tool for the left.  “(snarl!) Those people are making TOO MUCH MONEY!!!  GRRRR!  They should be PUNISHED FOR THEIR GREED!!!”

      O’ course, there is no objective measurement for how much profit is “too much”, and libs don’t stop to consider the key role profit plays in driving our economy.   Like the sheep in “Animal Farm”, all they know is that profit is baaaaad.

      Once again, I have to wonder how dragging down one person or group helps anybody else.  Sad thing is, lefties have made it thei religion and central policy plank for decades.

  • The private health insurance industry is trying to make us believe that they are entitled to their outsized profits because these represent a very small profit margin (which they claim is about 3%).  This, however, is entirely misleading and disingenuous. They base this percentage on total medical costs and compare their “puny” profits with those of, say, automakers.
     
    But here’s what’s going missing in this comparison. Automakers actually produce a product. Their profit margin is a real number. Private health insurers do no such thing. They are not the producer of the medical services that generate those costs. All they do is push paper around and siphon off loads of money from subscribers, passing as little as possible on to providers when they can’t find a way to deny it (what they call “medical loss ratio”, an exceedingly callous term).
     
    To see the real picture, the private health insurance industry would have to take a percentage of only the value that they generate. As far as I can see, this is about zero. In fact, I think it should be a negative number, given all the harm the industry does to its subscribers.
     

    • Private health insurers do no such thing. They are not the producer of the medical services that generate those costs.

      Of course that’s true of any insurance, whether it be home, health or auto.  If you really believe they have no value, don’t buy it or just get the minimum required. If you own your home outright, you don’t need to carry insurance at all.  Just pay for rebuilding it out of pocket if there’s a fire. Health care is the same.  You can either buy insurance or just hope you never need it.
      Auto insurance is really cheap when you raise the deductible to $10,000.  In fact; if you haven’t already dropped your auto insurance to minimum coverage with maximum deductible, then you are paying  money for something you claim has no value. That, or part of you recognizes that insurance might be useful after all.
       

    • “To see the real picture, the private health insurance industry would have to take a percentage of only the value that they generate. As far as I can see, this is about zero.”

      Then why is it so critically important to Obama and the Democrats to give everybody something worth close to zero?