National health care reform is modeled on the plan now in effect in Massachusetts. The key features of Romneycare are an individual mandate and an exchange ("health connector"), in which there is no pre-existing condition clause (you sign up on line and don't tell them anything but your ZIP code and birthdays) and they can't rescind coverage.
I'm a sole proprietor, so I get my family's health insurance through a small business broker. This is cheaper than the exchange. But since the individual mandate took effect two years ago, rates have skyrocketed, both inside and outside the exchange. Something is very wrong here. My primary care doctor sure isn't getting rich. Where is the money going, and what ever happened to cost control?
A year ago, my HMO raised rates by 28%. I moved to a cheaper plan with higher deductibles, so my net out-of-pocket went up slightly less than that. That is, my insurance went up a small amount and my out of pocket went up by a small amount, but I think I ended up at less than 28%. This may have been luck; had multiple family members gotten seriously ill, it could have been worse.
This year, they raised rates by 17%. This made the news: The whole cartel announced similar rate hikes all at once, for the April sign-up season. My HMO raised rates less than some of their fellow cartel members; another's rates rose by 18 to 32%! And that's after similar hikes last year. Take 117% of 128% and you've got a 50% hike in two years. During those two years, the economy contracted and there was consumer-price deflation for the first time since the 1930s. But the medical cartel is having a boom that makes the real estate bubble look small.
The Connector rates have risen just as much. My rate has been hiked to $1741/month. The lowest legal rate in the connector, the "bronze-low" plan, is $1328. That has a 35% copay on hospitalization after a $2000/4000 deductible and 50% copay on non-generic prescriptions. It's little more than junk insurance. A "silver-medium" plan comparable to my current plan, hardly Caddy-grade, would be $2204/month. That already tops the Senate bill's "Cadillac" level. But don't confuse it with the Gold plan at $2497/month. And that's not the highest-cost one. I'm quoting the cheapest plan that has doctors in my part of the state (vs. commuting to a downtown hospital) and isn't "limited network" (a small handful of doctors are covered, nobody we'd ever use, few if any in our area). So my broker still beats them by a good margin. Remember, the exchange is an assigned-risk pool. Its prices are based on adverse selection. Low-risk buyers go elsewhere.
The only hope we ratepayers have is that the governor's attempt to roll it back succeeds. Technically, medical insurance rates can be regulated by the state, but in the past they've never actually done it; the insurers file a rate with the state on the day it takes effect. This year, Gov. Patrick and his insurance chief have called for rate hikes to be held to 4.8%. The insurers laugh at them, considering themselves above the law. How this plays out remains to be seen.
What the hell is going on? Where is all the money going?
What we seem to have is supply-demand imbalance. The individual mandate forces demand. You can't say no, and there are few competitors, and no antitrust protection, so cartel behavior is legal and natural. So they take more money, keep a nice amount (they're often "non-profit" which just means that the executives make out well), and are generous to the hospitals and drug companies. These providers know that they can raise prices all they want because the insurers will pass them along. It is not a free market! It's extortion.
If the insurance company's rates were capped, then they would have an excuse to tell the drug companies and hospitals "sorry, no can pay" when they again hike the rates. In that case, the insurance company could theoretically start doing its job of trying to control costs. And that would ripple up the system to the Swiss and British drug makers who get several times as much for the same drug here that they get anywhere else. It would ripple up to the big hospitals, who love fancy new buildings and gizmos, even as the lower-cost local hospitals go out of business. It would ripple up to the specialists who charge top dollar, like $3/second for surgery.
But with the ability to pass on costs freely to mandated ratepayers, costs only go in one direction. If there's going to be regulation that says we must buy the product, then there needs to be regulation of its price!
I don't know if the supposed cost controls in the current Senate bill and Sidecar are meaningful. I tend to doubt it. I still want the bills to pass, if only to avoid the "Waterloo" scenario's playing out in the fall elections. But there must be real cost control. A tax on insurance doesn't do it. That just makes the mandated payers pay more; there is no real shopping around for doctors by price. They don't list prices and you couldn't understand a hospital price book if you were allowed to see one, which you aren't. Economists who favor that approach have their heads up their asses, plain and simple. Of course changing the incentives helps too; Mayo's salaried doctors and capitated fees result in far lower costs than pure fee-for-service. So that may be necessary. Price regulation is however the only way that I can see to get things under control for now. Even if it's not as draconian as Japan's, where every medical procedure's price is in a single national price book, there still needs to be immediate control. A 50% rate increase in two years? I wonder how long they think they can keep this up.