Health Insurers Undermine GOP’s ‘More Skin In The Game’ Theories

Americans may be postponing or forgoing medical care, but health insurance companies “continue to press for higher premiums,” the New York Times reported last Friday, severely complicating the GOP’s argument that giving seniors more “skin in the game” will lead individuals to use less care, spend less, and eventually lower health care costs. Jared Bernstein explains:

The story goes like this: insurers have been raising co-pays (the amount you contribute out-of-pocket when you get medical treatment) which should make people more cost conscious, and in fact, recession-battered families have been responding by seeking less care. So far, basic econ 101.

But despite the cost shifting and resulting demand contraction, premium prices have gone up as fast as ever. [...]

In competitive markets, sellers can’t typically set today’s prices based on where they expect demand to be in the future. If one of them did so, others would capture their market share by pricing based on current supply and demand conditions.

The dynamic should lead you to be particularly skeptical about plans that depend on private insurers responding to market signals (are you listening, Rep Ryan?). Republicans go on about how once everyone’s out there on their own shopping for insurance in unregulated, private markets, competition will drive prices down.

That’s how it works for bananas. It’s not the way it works for health insurance–folks are locked into plans through their jobs, there’s huge information disparities (their business model is to know who’s risky and avoid them), and most importantly, individuals have minuscule bargaining clout. So if you wanna shop for health insurance by yourself, just make sure your policy covers masochism.

Bernstein says that insurers are justifying their increases based on projects of future demand, but the other factor here may be the looming regulations that insurers will be expected to follow once the Affordable Care Act is more fully implemented in 2014. As incoming Federal Insurance Office director Michael T. McRaith put it to Kaiser Health News last month, insurers are using the interim period between passage of the Affordable Care Act and when most of the insurance regulations are enacted in 2014 to increase profits and force the sickest (and costliest) beneficiaries off their rolls. “They are using the absence of rate regulation to price out existing policyholders. That is designed to lead to the accumulation of capital, so that by 2014, when insurers have to cover everyone, they’ll be starting from a point of extreme financial strength,” McRaith explained.

This only goes to show that Congress will need to pass additional legislation to control health care premiums (Sen. Dianne Feinstein (D-CA) has a bill that could help do just that), rather than offer legislation that would deregulate the industry and push individuals to try and find affordable coverage within it.