NCPA - National Center for Policy Analysis

Politicians Can't Control Health Costs

June 23, 2011

Connecticut legislators recently passed a bill that would give the executive branch the power to decide whether health plans should be allowed to increase their premiums at rates that keep pace with medical costs.  Health plans may be a politically attractive target, but giving politicians the power to approve premiums causes other problems -- and doesn't even hold down rate increases, says John R. Graham, director of health care studies at the Pacific Research Institute.

  • In Massachusetts, the 2006 health reform led to draconian limits on premium hikes, but health spending still spiraled upwards.
  • The state's Insurance Commissioner refused 235 of 274 requested rate hikes for April 2010, and demanded that plans rebate premiums that had already been paid.
  • But medical costs in Massachusetts increased faster after the new regulations than before.

Nor is there evidence that prior approval of premium increases has protected consumers from unreasonable rate hikes.

  • Graham examined data on premiums and premium-review laws for small group premiums in 43 states in 2006 and 2008.
  • Nineteen states were "file & use," which means that health plans must submit premium increases to the insurance commissioner, but he has no power to reject them.
  • Twenty states required prior approvals of rate changes by the insurance department and four were unregulated.
  • There does not appear to be any connection between prior approval and a lower change in rates from 2006 to 2008, nor the absolute value of rates in 2008.

The average increase over the period was 8 percent for both file & use states and states requiring prior approval.  The highest increase in the file & use states was 27 percent (in Virginia) and the highest in the states which required prior approval was 25 percent (in neighboring Maryland).

The notion that politicians can control health costs is a conceit of the ruling class.  Health costs will only decline when patients, not politicians, directly control more of our health spending, says Graham.

Source: John R. Graham, "Politicizing Premiums Does Not Control Health Costs," Forbes, June 15, 2011.

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