Obama’s Insurance Price Controls
The health-care law gives power to regulators rather than enacting clear regulations.


Kevin D. Williamson

Today’s milepost on the road to serfdom: The Obama administration is beginning to impose price controls on the insurance industry. Henceforth, if a health-insurance premium is to be increased by more than 10 percent, the company will be obliged to go and beg the government for its blessing.

Incidentally, Congress has enacted no law regarding that 10 percent standard. Health and Human Services secretary Kathleen Sebelius simply issued a decree. She could have chosen 1 percent, 11 percent, or 0.01 percent. Why 10 percent? Because it sounds nice and won’t confuse dim voters who are not good with math.

In one important way, this move is even worse than it looks initially: The economics of price controls are well understood (usually the result is shortages), and the consumers the Obama administration alleges it is protecting here are the ones who will pay the highest price, in the form of degraded services and very probably, in some cases, loss of health insurance. That’s all obvious enough, and it serves the insurance industry right for allowing itself to be bought off with Obamacare’s individual mandate. But what the Obama administration really is up to is imposing undefined political mandates on insurance pricing. It hasn’t so much passed a regulation as inserted itself into the market as a subjective arbiter — a pattern it is following in other industries, too, and one that bears keeping a watchful eye on.

That 10 percent benchmark is a dead giveaway of politics at play: It’s an entirely arbitrary number that is in no way related to health-care prices, health-insurance prices, health-care inflation, general inflation, or any other economic factor. It’s a nice, round number that’s easy to remember — which is to say, it’s a political number, pulled out of Sebelius’s magic hat. Why is 10 percent the standard of unreasonability? The law contains a mess of self-referential, subjective standards: An “unreasonable” increase is one that is “excessive,” an “excessive” increase is one that is “unjustified,” etc. All of which means: Kathleen Sebelius gets to insert herself between insurers and the insured whenever she likes and do whatever she wants.

The Affordable Care Act empowers her to collar insurance providers and demand an explanation for an increase in premiums. The act does not empower her to block such increases. But many states already have that power, and so Sebelius & Co. will be using them — and $250 million appropriated to bribe them — to impose what Washington cannot: regulatory federalism in reverse. In those states that do not have the authority to enact price controls, Sebelius intends to step in and browbeat insurers herself: Which is to say, states with strong regulatory authority will find themselves used by Washington as tools, and states with weaker regulatory authority — states whose citizens have chosen not to enact strong regulations — will be supplanted by Washington.

All of this will proceed from an unwise and arguably unconstitutional delegation of power from Congress to the bureaucracy and the imposition of a meaningless, subjective standard of reasonability. Social order requires stable and objective rules. The federal minimum-wage law, for example, is a bad and destructive law, but it is easily understood, it establishes a clear standard not vulnerable to subjective political interpretation, the minimum can be raised only by an act of Congress or by the legislature in states with higher minimum wages of their own, etc. A minimum wage of $7.25 an hour means you have to pay employees at least $7.25 an hour. The regulation is clear and can be complied with in a way that is objectively measurable. Which is to say, the standard is the regulation, not the regulator.

The Obama administration and the Left in general have of late taken a different approach, investing power in regulators rather than in regulations. Price controls are bad enough, but a rule that says, “Insurance premiums cannot increase by more than 20 percent a year,” or, “Insurance premiums cannot increase by more than 150 percent of the Consumer Price Index,” or something similar is vastly preferable to a rule that says: “Ask Comrade Kathy.”

But “Ask Comrade Kathy” is what we’ve got. The Dodd-Frank financial-reform bill similarly creates a powerful regulator and a web of confused and subjective standards.

The lack of clear lines of authority, measurable standards, and stable rules does not make regulators weak: It makes them powerful. If the standard of “reasonability” is whatever Kathleen Sebelius decides it is on any given day, then it pays to be in the good graces of Kathleen Sebelius.

— Kevin D. Williamson is a deputy managing editor of National Review.