Sunday, March 4, 2012

Maine vs. Anthem Decision

The Maine Supreme Court released its decision in the Anthem case last week, where the insurer had challenged the adequacy of the Superintendent of Insurance's approved rate.  I'm glad the court found in favor of the Superintendent, states should have flexibility in regulating and a judicially imposed profit load would just be a mess.  But I'm a little amused at the court's dismissal of the subsidization argument, where Anthem argued that the low profitability of the individual and small group lines would drive up large group pricing.

Here is the key section addressing this on page 18, emphasis mine.
There is no evidence in the record to suggest that the approved rate increases will inexorably result in higher rates being charged to Anthem’s unregulated group insurance consumers. To say that Anthem might occasionally need to use its substantial company-wide surplus, which we agree is funded in large part by the financial success of its unregulated group insurance products, to pay for intermittent losses sustained by the individual lines, is both in form and substance a different statement than saying that its group consumers are in fact being charged higher rates in order to subsidize the regulated lines. Without some discernable proof that cross-subsidization is occurring as a result of the rate approved by the Superintendent that included a 1% risk and profit margin, Anthem’s argument falls short of persuading us that the Superintendent overstepped the bounds of her statutory authority by using her concept of the “inadequate” standard as a vehicle to consider the financial health of the company as a whole.
The judges acknowledge that the surplus is largely derived from the unregulated lines, and that regulated lines will occasionally take money from that surplus.  They don't say it explicitly, but clearly they understand that the lower the margin on the regulated lines the more it will take from surplus and the less it will contribute back to it.  So where is the money supposed to come from?  How is this not requiring subsidization?

 What the judges are really saying is that to make this claim stick you need clear evidence of subsidization, such as attaching a "you are now subsidizing the regulated lines" fee onto all the unregulated business.  That works for utilities, just look at all the line items broken out on your bills.  Utilities can throw whatever they want on there without consequence because customers have no choice, it's a monopoly.  That isn't the case with large group health insurance.  Businesses have plenty of options if they don't want to effectively help out all the employees of companies that don't bother offering health coverage.  I think that kind of subsidization is unsustainable even when it is under the table, eventually people would figure out that insurers that didn't write any regulated business would be cheaper than those who did.  But how much quicker will that happen when you slap businesses in the face with an overt penalty fee?  The judges made a lot out of the lack of evidence submitted by Anthem, but what could Anthem say without sabotaging the lines where they actually make money?

Grist for the mill for those thinking about how to effectively regulate health insurance.

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