New HHS "Cost-Reducing" Regulations Could Actually Hike Premiums

Posted: Nov 24, 2010 9:56 AM
On Monday, we told you about Kathleen Sebelius' new HHS regulation, which instructs private health insurers how they must spend their money and render their services.  I warned about the negative Massachusetts precedent, which has already demonstrated how tight government control leads to bruising legal battles and an ever more intrusive State.  The endgame, I suspect, is putting the entire private industry out of business, which has long been a fantasy of the Left.

As a more immediate concern, Reason's Peter Suderman raises another objection to HHS' edict: While purporting to reduce healthcare costs, it could very well end up increasing them:

If anything, mandatory MLRs encourage health insurers to drive overall spending upwards: Because profits and administrative costs will be limited to a small portion of each premium dollar, they end up tied to spending on medical services. So if an insurance company wants to expand the pool of potential profit dollars, one easy way to do that is by increasing spending on medical services and thus increasing premiums. And with some administrative cost-saving activities limited as well, that will be even easier.

HHS Secretary Kathleen Sebelius says the rules "guarantee that consumers get the most out of their premium dollars." I’m not sure they guarantee much of anything, but a better bet is that they’ll result in insurers getting more premium dollars out of consumers.

Depending on how you view this entire process, this is either a nasty unintended consequence of Obamacare, or a nasty, entirely intended consequence of the law.