Jim Stergios and Amy Lischko from the Pioneer Institute write a well reasoned op-ed article in today's Boston Globe about current events in Massachusetts, where the Insurance Commissioner has decided to impose arbitrary price controls on a portion of the health care insurance market. More background here.
The consequences of this action are starting to be felt. Blue Cross Blue Shield of Massachusetts sent out a letter this week to the state's hospitals in which it notes:
In the coming weeks, we will work directly with individual hospital and physician groups on ways to reduce the payments we make to physicians and hospitals in the near term.
My translation of this is that those hospitals whose contracts come up for renewal this year will get no increase in their reimbursement rates from BCBS. Presumably other insurers will do likewise. These actions are predictable in that these insurance companies, under the supervision of the same Commissioner of Insurance, are required to maintain certain capital reserve levels. If they can't charge customers the actuarially appropriate rates for insurance, their only option is to charge other customers higher rates or to stiff the hospitals and doctors.
Ironically, though, the approach now being taken will aggravate an underlying problem in the Massachusetts insurance market, a problem documented in full by the Attorney General just a few weeks ago: The large disparity in rates paid to hospitals and physician groups based on their market power. The large, powerful groups who have contracts extending beyond the current period will continue to get their disproportionate rates -- and, indeed, annual rate increases based on a percentage of those rates. The "have-nots" who happen to be up for renewal this year will find their rates frozen, and the differential with the "haves" will grow.
The further irony of this approach, too, is that the current crisis in small business insurance rates is fundamentally not a hospital and physician cost issue. Hospitals and doctors do not charge different amounts to serve subscribers from small businesses and individuals than those from large businesses. It is the manner in which ratings are done by the insurance companies that drives the differentials in premiums. Those rating decisions are based on actuarial factors. One of those factors is that small business and individual subscribers do not have a single open enrollment period: They can enter and leave the insurance marketplace based on subscribers' health. They are the ultimate example of adverse selection.
Eventually, the courts may rule on the legality of the Commissioner's actions, but damage will be done in the meantime. Several of those "have-not" hospitals are the major employers in their communities. Their main options for dealing with reimbursement deficiencies will be to cut back on staffing, capital investment in needed clinical areas, and service to their cities and towns. Damage will be done to the "economic growth engine" of the Massachusetts economy, the health care sector. Also, public confidence in the state's ability to implement its landmark health care reform approach will be reduced.