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March 10, 2010

Insurers Gone Wild!

“We allow the insurance industry to run wild in this country,” President Obama declared on Monday. “We can’t have a system that works better for the insurance companies than it does for the American people.”

Yet Obama’s plan to tame health insurers would boost their business, protect them from competition and guarantee their profits, all at the expense of consumers and taxpayers. It is therefore not surprising that the insurance companies, while they object to the president’s rhetoric and quibble over some of the details, are happy to be domesticated. Here are five ways in which Obama would help insurers while pretending to fight them:

The individual mandate. What industry wouldn’t welcome a law requiring everyone in the country to purchase its product? The insurers’ only objection to this edict – which would force young, healthy people who don’t want insurance to subsidize the care of older, sicker people who do – is that the penalties for failing to comply are not severe enough.

The employer mandate. Requiring businesses to buy medical coverage for their employees brings the insurers more conscripted customers. It also shores up a perverse system of employer-provided health insurance that insulates consumers from prices, limits their choices and weakens competition.

Subsidies. Allocating taxpayer money to help individuals and small business buy medical coverage makes customers less price-sensitive, allowing insurers to charge more than they otherwise could.

Regulations. Obama wants to dictate the details of what he considers to be minimally acceptable medical coverage, including the size of deductibles and the extent of benefits. This policy, which forces people to buy pricier policies than they would choose on their own, is like decreeing that all Americans should buy a Nissan Altima with GPS, a sunroof and leather seats, even if they would prefer a Hyundai Accent.

Limits on competition. Obama pays lip service to the idea of letting health insurers, like other insurers, compete for customers across state lines. But his minimum coverage requirements would undermine a major benefit of such competition: the ability to escape a particular state’s restrictions on the policies insurers can offer.

If Obama’s plan works as advertised, it will be a huge boon to insurers. As he himself notes, “They’re going to have 30 million new customers,” thanks to the government’s mandates and subsidies.

To distract us from the favor he is doing for insurers, Obama claims to be getting tough with them by demanding that they take all comers and charge them all the same rates, without regard to health. While abolishing risk-based pricing contradicts a basic principle of the insurance business, the industry has to weigh the loss of that freedom against the gain of government-guaranteed revenue.

Despite his talk about reining in “excessive” premium hikes, Obama’s plan commits him to keeping insurers financially sound so they can provide the coverage he is promising. Federal regulators, like their state counterparts, will find that “you can’t separate the underlying solvency of companies from the rates they charge,” as Wisconsin’s insurance commissioner recently told The New York Times. “From a consumer protection standpoint,” Kansas’ insurance commissioner agreed, “the most important thing we do is ensure the solvency of companies.”

In essence, then, Obama’s plan would use money forcibly extracted from taxpayers and policyholders to keep insurers healthy. He says this arrangement means “insurance companies would finally be held accountable to the American people.”

The collectivist language is telling. I don’t want insurance companies to be “accountable to the American people” – I want them to be accountable to me, as a consumer. That situation, which is also the best way to bring costs under control, can be accomplished only by promoting choice, increasing competition, and removing the barriers that prevent consumers from receiving and responding to price signals.

Insurers may prefer the security of Obama’s domestication to the uncertainty of scrounging for customers in a free market. But why should we bear the cost of their care and feeding?

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