Sebelius's Price Controls

By Wall Street Journal, Wall Street Journal - December 22, 2010

And seasons greetings from the folks at Health and Human Services too. Yesterday the department dropped one of ObamaCare's more destructive regulations, which will further increase political control of health care and impose price controls on private insurance premiums.

Under the 136-page rule, the federal government will now decide what counts as an "unreasonable" rate increase, and HHS Secretary Kathleen Sebelius wrote to Governors yesterday urging them "to prevent unjustified and excessive health insurance premium growth." Apparently, "unreasonable" means rate increases that exceed 10% next year, except when it doesn't. If an insurer crosses this arbitrary threshold, "The review process would then determine if the increase is, in fact, unreasonable." So that's cleared up.

This discretion is typical of the vast ad hoc powers that ObamaCare handed to regulators, though Ms. Sebelius's true goal is to punish the insurance industry for rising health costs that the new entitlement is already turbocharging. Like so much else in U.S. health care, no one seems to find it odd that the government is decreeing how much businesses are allowed to charge for a product that consumers want to buy, regardless of the economic reality.

ObamaCare mandates greater insurance benefits and other regulations that distort market pricing, while also accelerating the explosive costs of medical services. Premiums will naturally climb to cover those costs. It won't take much to hit 10% when the Standard & Poor's Healthcare Economic Commercial Index, which tracks private spending, increased 8.5% over the last year—and that's prior to the worst of ObamaCare kicking in.

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Health and Human Services Secretary Kathleen Sebelius at a Health Care Fraud Prevention summit in Boston earlier this week.

Contrary to the HHS caricature of a pitiless free market, 43 states already regulate and approve premiums in the individual or small-business markets, or both, based on actuarial and solvency data. HHS will allow state insurance commissioners to continue under the status quo, unless it decides that their reviews aren't "effective," whatever that means.

This is all an effort to end-run Congress, which by some miracle declined to give HHS the formal legal authority to explicitly block premium increases, despite a direct appeal from President Obama. Instead, Ms. Sebelius is creating by regulatory fiat larger de facto powers to achieve the same end.

Yesterday, HHS reiterated Ms. Sebelius's threat to exclude certain insurers from ObamaCare's insurance exchanges if they show "a pattern" of unjustified rate increases. In practice, that would be a corporate death warrant. In September, after some carriers spoke honestly about rising costs, she warned that "there will be zero tolerance for this type of misinformation and unjustified rate increases."

To understand how this political thuggery will operate, look to Connecticut and the recent campaign of intimidation against former insurance commissioner Tom Sullivan. In September, following a thorough actuarial analysis, Mr. Sullivan approved some rate increases reaching 20% for Anthem Blue Cross Blue Shield, the largest state insurer by membership.

The higher rates applied to new customers only (not existing policy holders) and were largely the result of ObamaCare's mandates. In one case, a single stray provision increased the cost of a prescription drug benefit by nearly 23%. Yet Attorney General Richard Blumenthal made the approval a centerpiece of his Senate bid, while Mr. Sullivan was demonized by local labor unions.

"I find myself in an unprecedented place and time, as do my counterparts throughout the country," Mr. Sullivan wrote to Mr. Blumenthal, "in overseeing the implementation of one of the most far-reaching policy initiatives enacted by the federal government in recent history." State regulators, he continued, are "in an unenviable position as we are required by Congress to approve richer benefit packages, while simultaneously being called upon by you to reduce rates."

In October, Jay Angoff, the HHS director of insurer oversight, sent a very public letter calling the Anthem approval "particularly troubling" and demanding a re-evaluation, including a new public hearing. Under duress, Mr. Sullivan resigned in November, and his successor promptly overturned his ruling.

A similar premium drive-by continues to play out in Massachusetts—and is coming soon to a state near you. Politicized rate-setting is the new reality of the U.S. health insurance market, not that consumers will in any way benefit.

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