Critical Condition

NRO’s health-care blog.

Price Controls: Coming Soon to an Insurance Market Near You


Obamacare all but turns the private insurance industry into a regulated utility (and may do so in short order over the next few years as additional regulations are implemented), and we can already see its awful logic playing out in the Bay State, which implemented Obamacare Lite in 2006. The Wall Street Journal writes this morning:

This week it became impossible in Massachusetts for small businesses and individuals to buy health-care coverage after Governor Deval Patrick imposed price controls on premiums. Read on, because under ObamaCare this kind of political showdown will soon be coming to an insurance market near you.

The Massachusetts small-group market that serves about 800,000 residents shut down after Mr. Patrick kicked off his re-election campaign by presumptively rejecting about 90% of the premium increases the state’s insurers had asked regulators to approve. Health costs have run off the rails since former GOP Governor Mitt Romney and Beacon Hill passed universal coverage in 2006, and Mr. Patrick now claims price controls are the sensible response to this ostensibly industry greed.

Yet all of the major Massachusetts insurers are nonprofits. Three of largest four — Blue Cross Blue Shield, Tufts Health Plan and Fallon Community Health — posted operating losses in 2009. In an emergency suit heard in Boston superior court yesterday, they argued that the arbitrary rate cap will result in another $100 million in collective losses this year and make it impossible to pay the anticipated cost of claims. It may even threaten the near-term solvency of some companies. So until the matter is resolved, the insurers have simply stopped selling new policies.  

This is exactly what legal scholar Richard Epstein predicts will happen once Obamacare goes into full effect:

The Reid Bill emphatically fails this test by imposing sharp limitations on the ability of health-insurance companies to raise fees or exclude coverage. Moreover, the Reid Bill forces on these regulated firms onerous new obligations that they will not be able to fund from their various revenue sources. The squeeze between the constricted revenue sources allowable under the Reid Bill and the extensive new legal obligations it imposes is likely to result in massive cash crunch that could drive the firms that serve the individual and small-group health-insurance markets into bankruptcy.

Professor Epstein was analyzing the Senate version of the Democrats’ legislation, but the version the president signed into law contains the same essential provisions.  Don’t say we didn’t warn you.


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