The insurers' antitrust exemption, which applies to property and casualty policies as well as health coverage, allows companies to share data about losses so they can predict how much they'll have to spend on claims in the future. That calculation is crucial to how they set rates. Sharing data with established insurers makes it easier for new ones to enter the market and for small ones to compete. But the bill's sponsor, Rep. Betsy Markey (D-Colo.), says the exemption also enabled hundreds of mergers among health insurers since the mid-1990s, consolidating the industry and weakening competition.
Removing the exemption won't do much to boost competition or spark a price war among insurers, however. (The Congressional Budget Office said that a similar proposal in the House's comprehensive healthcare bill would have no significant effect on premiums because state regulators already require insurers to price their coverage competitively.) The unfortunate reality in healthcare reform is that there is no quick fix to reducing premiums or even bringing their growth into line with inflation. The ever-increasing cost of insurance reflects the incessant growth in healthcare spending. And the solution is to reduce the supply of money for healthcare, lower the demand for medical services, or do both.
The House and Senate healthcare bills, like the major GOP alternative, include efforts to reduce the supply of money in some areas of healthcare as well as to trim demand. But those provisions have been overshadowed by the costly insurance subsidies that Democrats would create for the working poor and the unpopular tax increases and Medicare cuts that would pay for them. Most Americans already have insurance, and they're less concerned about the growing ranks of the uninsured than they are about the climbing cost of their own policies. According to the Congressional Budget Office, the bills won't make much of a difference on that front. For example, it estimated that the Senate bill would bring about a slight decrease in group premiums in five years but a 10% to 13% increase in individual policy premiums, mainly because the latter would provide more comprehensive coverage than such policies offer today.
It's not that the Senate bill doesn't try to rein in costs. In fact, it's replete with demonstration projects of new approaches to delivering and paying for care, promoting quality and preventing disease. But those projects may take years to translate into widespread savings. One exception in the bill was the excise tax on "Cadillac" insurance policies, which could have reduced the demand for healthcare services right away by raising the cost of policies with minimal co-pays and deductibles. Fierce opposition by organized labor, however, led top Democrats to agree to delay that provision for workers with union contracts.
They need to move the bill in the opposite direction, toward more credible and quantifiable reductions in the growth of healthcare spending. They should start by adding mechanisms that would apply the methods developed in successful trials and demonstration projects to all of the government's healthcare programs, with inducements for private insurers to do the same. Lawmakers also should take a more aggressive approach to the prevention of chronic diseases, which account for a grossly disproportionate amount of U.S. healthcare spending. That means finding more effective ways to combat the obesity epidemic, which the Milken Institute estimates has cost a trillion dollars in healthcare expenses and lost productivity since 1991. Finally, they should adopt a “fail-safe” mechanism along the lines that the National Coalition on Health Care has proposed, with a specific goal for healthcare savings and a means to push providers, insurers and drug companies to achieve it. That's not a call for price controls; it's a mandate for the industry to stay focused on the problem of rising costs.