Monday, May 10, 2010

A Close Look at Insurance Rate Hikes

The NY Times has an editorial today on the insurance rate hikes by Anthem in California. Two things jump out, first the complexity of the current insurance model and the need for sophisticated (read expensive) oversight to make it work. The second is that this is yet another piece of evidence that the private insurance model has an incentive structure that makes cost control difficult. The insurance company finds it most efficient to try to pass on additional costs to consumers rather than trying other methods.

Isn't part of the argument in favor of private markets that they will do better cost control? If that were actually happening, wouldn't the insurance company be trying to squeeze costs by leaning on providers rather than raising rates and forcing people either out of the market or to other providers (setting aside for the moment government intervention to prevent the rate increase from actually going through)? Something isn't working if the insurance company believes it is more effective to pass on costs to consumers rather than trying to influence providers to lower costs or discourage use of services.

No comments:

Post a Comment