Thursday, February 14, 2008

Government Regulation Gone Amuck, Three More Examples in One Day: Health Insurance is No. 4

I struck a gold mine with this subject, apparently. In today's Wall Street Journal, I stumbled upon three more examples of government's role as Sugar Daddy, i.e. egocentric drug dealer where the drug is special privilege and/or monopoly. (See my last post for a more detailed explanation.)

Today, we get these:

4. Health Insurance. The State of New York is going to conduct an "investigation" into "illegal" (?) pricing of rates by United Health, Aetna, Cigna, and Blue Cross/Blue Shield.

As the article by Vanessa Fuhrmans and Theo Francis states, "Doctors and hospitals have long complained that the methodology [of calculating out-of-network providers' covered fees] is opaque and sets reimbursement artificially low."

Most people have heard of the "preferred provider" system that insurance companies use. Would it really make sense for insurance companies to pay the higher fees of those doctors and hospitals who refused to enter into contracts with them?

[Thanks to for the image.]

And anyway, my experience has been that all of the doctors and hospitals I have consulted have been preferred providers.

Furthermore, without the preferred provider system, patients would have no incentive to use the providers who charged lower negotiated rates because all rates would be reimbursed regardless of the amount and the cost to the patient would be the same.

There is little or no competition in health care under our present system given the extent of coverage from which US insureds can and do benefit; so in order to control costs to the extent they can, insurance companies do not reimburse the higher fees charged. It's the only tool they have to discourage an explosion of medical fees and hence of premiums, which you and I pay for in the long run by renouncing higher salaries.

The truth of the matter is that all players in this game have something to win. New York Attorney General Cuomo, by throwing around unprovable accusations like "insurance companies ... defraud customers" and that there is an "industrywide scheme," gets to look like a hero to voters when he soon runs for governor. (What he doesn't say is that those companies got that big with state help. For more on this and for excellent suggestions for improving our health system, see this Cato material.)

Other players, the doctors and hospitals who refuse to contract with the insurance companies, will try to get the government to bully them into paying their higher rates. And another player, the big-government politicians, see this as a golden opportunity to inch the country towards nationalized health care.

Finally, the insurance companies win because to fight this kind of battle takes lots of money, and only the biggest and baddest can survive. This kills all the small-fry competition.

Insureds, beware. This is going to be a cat-and-dog fight, and once again, we the little guys and gals are going to lose out. Politicians and special interest groups will be the winners.

See my upcoming post for Example No. 5.

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