Massachusetts is capping health insurance premiums, but is it a good idea?

As Massachusetts struggles with rising health care costs despite implementing a statewide health care reform strategy in 2006, the latest idea is to cap the premium increases for insurance companies at 4.8%. The companies are requesting between 8% and 32%.

While arbitrarily capping prices may be appealing especially since we know that insurance companies are the very devil of health care, it’s not very practical.

The annual trend rate for health care costs ranges between 10%. and 12 % That is the rate of increase in the cost of health care services coupled with the use of those services. Even if there is no profit or expense involved, costs in a given year will rise by these percentages. Artificially capping premium increases will only lead to higher increases in subsequent years to make up the loss.  Eventually it will also lead to insurance companies going out of business or leaving a given market.  Ah you say, there is good reason for a government run plan. Not so because nothing really changes, costs continue to rise and even though the government can’t file bankruptcy (we hope), it can raise taxes or incur increasing deficits – sound familiar?

While I am no fan of price capping in general, why don’t we hear about caps on what physicians and hospitals charge? Why don’t we cap the number of office visits or days in the hospital that a patient can use each year?

How ridiculous you say? Is it any less ridiculous to cap what we pay in pemiums to cover these uncapped expenses?

Many people are worried about rationing of health care as the government tries to control Medicare costs. Given that most Medicare beneficiaries pay nothing for hospital insurance and only 25% of the costs under Part B insurance plus increases in those premiums are limited to the increase in Social Security benefits each year, how would you manage costs other than managing the care that is being provided? Oh, cap what Medicare pays doctors and hospitals you say? Sounds good as long as they can recover those lost earnings from non Medicare patients…like patients residing in Massachusetts.

Despite the rhetoric from Washington, all this health care stuff is connected. There are no easy solutions to truly controlling costs and certainly waiving a magic wand at the insurance companies won’t do it.

For more information on the calculation of health insurance premiums CLICK HERE