Their Only Idea

Further proof that the only cost control idea the Obama administration ever had was service cuts and price controls.

Health and Human Services is once again playing freelance actuary, demanding that the health insurers hold down increases in the premiums for their Medicare Advantage plans.  As far as the administration is concerned, this is a two-fer.  When people have to pay more for their insurance, they tend to ask what the hell good this gargantuan new health care bill is doing--not the question you want them asking as they head to the polls.  But in the case of Medicare Advantage, there's another benefit.  The health care reform bill mandated a substantial cut in payments to Medicare Advantage providers, which everyone expects will translate into cuts in the extra services that Medicare Advantage plans now provide.  If they make those cuts a year early, maybe the administration gets to claim that the cuts don't have anything to do with the new health care bill.

Of course, for the insurers, it's not such a good deal.  The administration doesn't seem to have offered any evidence that insurers are overcharging; basically, they're saying that they ought to underprice their product, even if that means losing money.  Which is what has happened in Massachusetts, where the state insurance regulator refused substantial rate increases, even though as far as I know they never found an actuary to sign off on their orders.  The insurers posted big losses shortly thereafter.


  1. Doug:

    I can't really tell if they are economically stupid or doing this on purpose. The end result doesn't matter, it's going to be all screwed up anyway you look at it.

  2. Hasdrubal:

    I still haven't found evidence that anyone on either side of the health care debate did a real actuarial study to determine if the added healthy people paying premiums due to the mandate will balance out the unhealthy people receiving benefits due to the new regulations. I'd think it would be a cornerstone of one of the sides' argument.

    I understand the theory behind mandating 100% coverage, but the net effect on prices is an empirical question and I can't imagine that nobody has tried to determine the results.

  3. Jeff:


    The net effect will be negative. The premium revenue will never equal the benefit cost. If they did, the program would be politically unsustainable. The only argument is over how big the deficit will be.

  4. Peter:

    Last I heard the insurers in MA are suing the state in order to raise their premiums 10 to 12%. If they don't get it I have heard they are threatening bankruptcy.

  5. Greg:

    I think the fair approach would be to have the insurers determine rates that will lead to a fair profit (5%?). Then, Democratic politicians can say those rates are too high, and set a lower rate. Then, we look at who was right after the fact. If the insurance companies were greedy heartless bastards, they refund the extra premium they wanted to charge, with a 10% penalty. If the politicians were idiots who had no idea how insurance works, they make up the difference out of their own pockets, again with a 10% penalty.

    Fair, right?