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Massachusetts health care system killing insurance companies?

A few weeks ago I wrote a post in which I said that ObamaCare is the path to a single payer system and detailed what it might look like. I argued that insurance companies were being set up to fail:

The fine for not buying health insurance is less than the cost of insurance itself. Since there's no incentive for the healthiest among us to buy insurance since they will have to be accepted when they do get they get sick, many people will choose to pay the fine, which will go to the government and not the insurance companies.

Naturally, it won't be too long before the insurance companies find themselves paying out more in claims than they receive in premiums. No company can stay in business under those circumstances. If the insurance companies try to increase their rates in order to stop the bleeding, the government will have the authority to call the rate increases excessive and will deny them. The fates of the insurance companies will be sealed. The smaller ones might be bought up by the larger ones. However, since so much of the regulations in the bill are still unknown, there 's a possibility that government regulations may prohibit mergers.

Facing the collapse of the private insurance industry, the government will step in and proclaim the industry too big to fail and take them over a la GM and Chrysler. Then viola, you've got your government run, single payer health care system.

Part of my prediction is already happening in Massachusetts. The Boston Globe published an article a couple days ago that reported people are gaming the system and buying health insurance only when they need expensive procedures or tests and then quickly dropping it after their medical procedures have been paid for by insurance companies:

Thousands of consumers are gaming Massachusetts' 2006 health insurance law by buying insurance when they need to cover pricey medical care, such as fertility treatments and knee surgery, and then swiftly dropping coverage, a practice that insurance executives say is driving up costs for other people and small businesses.

In 2009 alone, 936 people signed up for coverage with Blue Cross and Blue Shield of Massachusetts for three months or less and ran up claims of more than $1,000 per month while in the plan. Their medical spending while insured was more than four times the average for consumers who buy coverage on their own and retain it in a normal fashion, according to data the state's largest private insurer provided the Globe.

The typical monthly premium for these short-term members was $400, but their average claims exceeded $2,200 per month. The previous year, the company's data show it had even more high-spending, short-term members. Over those two years, the figures suggest the price tag ran into the millions.

Other insurers could not produce such detailed information for short-term customers but said they have witnessed a similar pattern. And, they said, the phenomenon is likely to be repeated on a grander scale when the new national health care law begins requiring most people to have insurance in 2014, unless federal regulators craft regulations to avoid the pitfall.

"These consumers come in and get their service, and then they leave because current regulations allow them to do it,'' said Todd Bailey, vice president of underwriting at Fallon Community Health Plan, the state's fourth-largest insurer.

The healthier citizens are forgoing insurance and are paying the fine instead, which is as low as $93 a month. The $93 a month fine is supposed to be the penalty for not buying insurance, but many people have figured out that the real penalty is the unnecessary $400 a month insurance premium. Naturally, they're buying the insurance only when they know they have an expensive medical procedure in their immediate future or when they get sick or injured. It should not be a surprise to anyone that the insurance companies are bleeding money as a consequence and that their only option is to increase premiums to try to make the additional revenue to pay the claims that are piling up.

However, when over two hundred Massachusetts insurance companies put in their requests to raise their premiums, the state denied the vast majority of them. Now six insurance companies are doing the only thing they can to save their companies. They are suing the state to reverse the decision:

A half-dozen health insurers yesterday filed a lawsuit against the state seeking to reverse last week's decision by the insurance commissioner to block double-digit premium increases -- a ruling they say could leave them with hundreds of millions in losses this year.

The proposed rate hikes would have taken effect April 1 for plans covering thousands of small businesses and individuals. Insurers wanted to raise base rates an average of 8 percent to 32 percent; tacked on to that are often additional costs calculated according to factors such as the size and age of the workforce.

Yesterday's legal action sets the stage for a showdown between state regulators and the health insurance industry.

Governor Deval Patrick has made reining in runaway health care costs a centerpiece of his administration and his campaign for reelection -- contending they are stifling the capacity of small businesses to create jobs. At the same time, health insurers argue that government is forcing them to sell policies at a loss that is unsustainable as the costs of medical services climb.

The small businesses in Massachusetts were happy that the state denied the companies' rate hike, but if insurance companies end up pulling out of the Massachusetts market because it's proven to be bad for business, these small companies will find themselves with fewer and fewer insurance companies to choose from, which only translates into premiums going higher, faster. Government thinks it can "bend the cost curve down" while insuring everyone. That is a myth. If a company can't stay in business because of excessive state regulation, it will go elsewhere.

These companies will find a better business environment in other states, but not for long. ObamaCare is virtually identical to the Massachusetts system, and the excessive regulations that will probably push insurance companies out of the Bay State will be in full force in every state of the nation in just four short years. Then they'll have nowhere to go but out of business.

Cross posted at KimPriestap: No-nonsense conservative opinion


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Comments (9)

RomneyCare will soon be 'si... (Below threshold)

RomneyCare will soon be 'single payer' and we'll all get to see how it works out for Massachusetts. Wonder how many will elect to cross the border into another state for medical care.

Remind me again why Romney ... (Below threshold)
Sean P:

Remind me again why Romney was the "true conservative" in the race.

Fooled ya! Romney never wa... (Below threshold)
jim m:

Fooled ya! Romney never was a conservative. He was barely a social conservative (not even really) and the health care thing should set to rest the lie that he was ever a fiscal conservative.

However Massachusetts will not just be a single payer system. With payments getting cut to hospitals all over the state (Boston Medical Center saw its Medicare payments cut by $100 Million last year alone and is facing a similar further cut this coming year), Massachusetts will soon be the first Zero Provider state.

"Thousands of consumers are... (Below threshold)
jim m:

"Thousands of consumers are gaming Massachusetts' 2006 health insurance law "

The example cited is nothing. MassCare, the State provided insurance program covers everything and loads of people are finding ways to get on the state program and get healthcare for free. My coworker makes $90K per year. His girlfriend is a student and makes virtually nothing. So we she got pregnant onto MassCare she went. They had the baby free of charge courtesy of the state. Does he plan to marry her? No Way! What and give up the free healthcare? Sure it's a hassle and there is red tape and waiting. But hell, it's free.

So MassCare is bankrupting the state financially and bankrupting the family morally. There is markedly less commitment to the relationship than would otherwise be. It has placed their relationship not on a plane of duty and responsibility but of merely convenience. Their decision on MassCare was predicated on convenience. With the relationship founded on convenience when it becomes difficult will the relationship be discarded as inconvenient? I would hope not, but I hear statements that tell me otherwise.

Great job libs. Killing the state and the family too.

In Romney's defense, he was... (Below threshold)
Baron Von Ottomatic:

In Romney's defense, he was governor of Massachusetts. If the legislature is going to pass something over your veto anyway what are you supposed to do.

At least Romney would have put up a fight against Obama - unlike Maverick.

I was a Romney supporter. H... (Below threshold)

I was a Romney supporter. He had a great reputation as a problem solver. I had no problem with Romney trying a health care "solution" in Massachusetts. That's in keeping with states as testing grounds for new ideas. What is not forgivable is that he continues to defend the Massachusetts law while it is clearly on the path to failure. He has lost me.

Mitt Romney's political gra... (Below threshold)
Tsar Nicholas II:

Mitt Romney's political gravestone.

This is a good summary of w... (Below threshold)
Dennis Byron:

This is a good summary of what had happened up the point you wrote the blogpost but the story doesn't end there. First two corrections:
1. There are not 200 insurance companies, just 200 plans from the six companies you mentioned
2. They can't go elsewhere; they are local non-profits; all they can do is go out of business

And the new news is, as of yesterday, that's what they are going to do, at least in terms of providing insurance to individuals and small groups (the people this was all supposed to help, remember, because others get their insurance from big groups).

So thanks politicians for screwing up my life.

But thanks to the guy with the pregnant girlfriend who wrote in, I now know I have a workaround. I can stop my small business (and stop paying taxes and 16% Social Security and Medicare), live off early Social Security and a small pension, and get almost free healthcare insurance from Massachusetts. From the same insurance company that won't sell insurance to me as an individual or via the state "exchange." I just have to become a member of a different group: welfare recipient.

What a country.

#5: Even assuming the most ... (Below threshold)
Sean P:

#5: Even assuming the most charitable defense of Romney -- that he went along with the legislature because he didn't have the votes to sustain a veto -- how does that support the argument that at least Romney would have challenged Obama? Frankly, on this issue at least, the facts suggest the opposite. It was McCain who stood up against Obamacare, even when the odds of passage seemed assured; and Romney that went along to get along, and signed de facto Obammacare into law.






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