Excellent article by Richard Epstein in today’s Journal While the explicit public option may be dead, the bill will strangle insurance companies’ rates and services and guarantee a rationing of care:
The perils of the Reid bill are made evident in a recent Congressional Budget Office (CBO) report that focused on the bill’s rebate program, which holds that once an insurance company spends more than 10% of its revenues on administrative expenses, its customers are entitled to an indefinite statutory rebate determined by state regulatory authorities subject to oversight by the Secretary of Health and Human Services. Defining these administrative costs is a royal headache, but everyone agrees that they are heaviest in the small group and individual markets, where they typically range between 25% and 30%, without the new regulatory hassles.
The CBO concluded that this one restriction turned the Reid bill into “an essentially governmental program.” In other words, the targeted health insurers would become de facto public utilities whose profits are gutted when the huge compliance costs under the Reid bill are piled on top of the hefty costs inherent in running a labor intensive health-care insurance business.
..Indeed, the most common justification for the public option was to supply real competition to the private sector. Now that the option has vanished, the alternative regulatory technique is brute regulatory force. The argument seems to be that price controls alone can force out the waste and inefficiency that are posited to be the hallmark of private markets.
By this twisted logic, rent control is the perfect path to efficient competitive markets. Unfortunately, here no insurer can simply cut back on services provided given the minimum standards. And if it raises rates, the rebates cut ever more deeply during the next period. So essentially, there is no viable option for these firms either on the state exchange or off it.
The economic chaos that is likely to follow the disruption of private insurance health-care markets draws no attention from its Democratic supporters. Oddly enough, it has also been overlooked by the opponents of the bill who are so appalled by this hydra-headed monster that they don’t have the patience to parse its mind-numbing provision.
Today’s bidding up of insurance companies’ stocks shows the ignorance of the experts of what’s in store. This will inevitablly lead to insurance companies going out of business with Uncle Sam gladly stepping in and explicitly taking over health care, an engineered crisis with an engineered rescuer. How anyone can support this insanity, (particularly with Social Security and Medicare alone having a 99.2 TRILLION dollar unfunded liability) I will never know.
And to understand why employers will drop all but their high earner employees like the plague and force them to get the government subsidized insurance one need only look at this graph from the Journal:
Also see these articles from Heritage: