A 40-page bill filed by the governor yesterday proposes to give the insurance commissioner the power to essentially cap health care price increases.
Rates hospitals and other health providers charge insurers would be “presumptively disapproved as excessive’’ if they increased faster than the level of medical inflation, and they could be rejected after a public hearing.
Similarly, for health insurance plans sold to employers with 50 or fewer workers, premium increases that exceed one and a half times the level of medical inflation would be considered excessive and could be turned down.
Just a few weeks ago, the Attorney General issued a report, after months of study, that explained that insurance price increases in the state were the result of two factors, the underlying increase in health care costs and a disparity of reimbursement rates that paid some providers substantially more than other providers.
The editorial writers at the Boston Herald have grasped the issue, here. You cannot, by administrative fiat, impose the kind of price controls proposed by the Governor without undesirable consequences.
What happens if we force the insurance rate increase to certain subscribers to be less than a certain percent per year? Either insurance companies modify their plan designs to include less extensive benefits or to require higher copays by those subscribers. Or, they meet the pricing target for that customer group by raising insurance premiums for other subscribers to cover this subsidy.
What does it mean to limit the amounts that providers charge insurance companies? This suggests that providers determine the rates that insurance companies pay them. Check the returns earned by Massachusetts hospitals. In a typical year, half have negative margins, and most earn returns that are not sufficient to renew and replace plant and equipment. For the majority of hospitals and doctors, the rates are set by the insurers, not "charged" by the providers. (Of course, as noted by the AG, there are some providers with the market clout to do better.)
The Governor's proposals remind me of the apocryphal state legislature that decided that the value of pi was inconvenient, mandating it to be 3.0 instead of 3.1415. You can't change irrationality by wishing it to be rational.
In this case, I would urge the Governor to use his existing authority or seek new authority to mandate total transparency of insurer-provider reimbursement rates to shine sunshine on the current payment system; to do likewise for measures of clinical performance; and to increase payments to primary care doctors to move them out of their triage mode and reduce the use of higher paid specialists. Those actions would help alleviate the concerns noted by the Attorney General, the ones based on the actual market conditions in the state.