Individual health insurance and the Insurance Commissioner
November 16th, 2011 | 
Author: As the law stands, no insurance company can sell policies across state lines. Each state is a separate market and has its own regulator, namely an Insurance Commissioner who’s responsible for monitoring the way in which the market operates and offering some degree of protection to those who buy policies. Except not all states are equal. The Democrat states tend to be more consumer-oriented and give their Insurance Commissioner more power both to regulate the insurers and to adjudicate on the way the insurers provide their services to local policyholders. The Republican states tend to believe in the notion of a free market. Rather than regulate, they believe consumers have the power to change the market by their behavior. So, if one insurer provides a bad service, rational consumers will all leave in favor of the other insurers. In this way, the market will police itself and the quality of the products and service will slowly improve. Unfortunately, this only works in text books. In practice, insurers do provide a poor service and policyholders accept this. It’s a form of learned helplessness as consumers do not believe the other insurers will be any better.
There are several key issues about the performance of Insurance Commissioners even where they do have powers to approve rate increases. The problem may be simply put. The way the actuaries calculate each company’s rates is highly complicated. More importantly, there are often assumptions made based on data not made available to the Commissioners. Insurers usually argue their own data is commercially sensitive and not to be disclosed. So, even for an expert, it can be difficult to assess whether a rate increase is actually justified. In some cases, however, the staff employed by the Insurance Commissioner do not have the experience or expertise to verify the insurers’ calculations. Since the Commissioner cannot even ask intelligent questions about the applications for approval, they tend to get waived through. This can produce political problems for the state government. For example, in 2010 New Mexico allowed a rate hike for Blue Cross Blue Shield policyholders. When the shouting stopped, the government had approved funding for an independent actuarial firm to vet all rate increases.
It’s the same when it comes to helping policyholders when they run into problems during the claims process. It’s often the case that, if the insurer plays hardball, the consumer’s only choice is to hire an attorney to take over and, if necessary, sue the insurer. This is always difficult for the Insurance Commissioner. The more staff employed to arbitrate between policyholder and insurer, the more expensive the service to the taxpayer. Even the last-resort investigations into alleged malpractice by the insurers is slow moving and often inconclusive unless there’s a formal court ruling clarifying the interpretation of policy terms. In other words, it takes a well-funded and strongly motivated Insurance Commissioner backed by a team with relevant expertise to stand up to the local insurance companies. With individual health insurance becoming so expensive, this is a worrying situation. Indeed, with there being no sign of any way to hold down the cost of health care services, further health insurance rate increases seem likely. Even an independent expert may be forced to accept rate increases if costs keep rising.
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