Last week, an HHS press release touted the new premium rate increase review provision of the Affordable Care Act.  This will require a regulatory review by either state or federal agencies when health insurance premiums in the small group or individual market are slated to go up 10% or more.

“Effective rate review works – it does so by protecting consumers from unreasonable rate increases and bringing needed transparency to the marketplace,” said HHS Secretary Kathleen Sebelius.

In an email, a friend noted about this press release, 'A step in the right direction.'

I respectfully disagree.

There are two parts to this new law, and is often the case, it confuses a good outcome with a bad process.

Pricing transparency is a good thing.  When consumes have more transparency on pricing, they make better decisions.  Health insurance is a highly complex product, so pricing is generally obtuse.  Regulations that require more transparency and simplicity are a good thing.  It helps consumers and holds insurers accountable for not using their information advantage to exploit the consumer.  We’ve seen this work well in the mutual fund and investment world.

But rate review, ironically, is contradictory with the idea of pricing transparency.  If transparency is to help the consumer make a better decision, why do we need rate review?  Just make the insurer be very clear that their rates are going up a lot, more than the market, and the informed consumers will handle the punishment by shopping somewhere else.  Or, if we have rate review, why do we need transparency. The insurer would simply have a little stamp on their product that says, ‘Reviewed by the government and the price increase is OK.  That is all the transparency you need.’

Add to the fact that much of the price increases are being driven by new coverage mandates passed and enforced by the very government agency that is doing the rate review and you truly have the fox in the hen house.

The only time rate reviews make sense is when one organization is given a legal monopoly and therefore must submit to this type of control.  We call these ‘utilities.’  Think about whether or not you want healthcare to become a utility. 

I trust people in the market.  Give them transparency and let them make their decisions.

I don’t trust rate review and know it will, in fact, lead to healthcare being an undifferentiated commodity, a utility.