Yesterday, it was reported that California Insurance Commissioner Dave Jones has issued a statement recommending that Anthem Blue Cross not be allowed to sell in Covered California's health insurance exchange for small businesses. Insurance Commissioner is an elected Constitutional office in California, so Dave Jones is certainly entitled to have his say, but his decision to single out Anthem — in light of a reported three consecutive premium hikes his office had deemed unreasonable — merits more thought for multiple reasons including what it can teach us about exchange operation, what it can teach us about state regulation of insurance, and what it means to promote consumer welfare by protecting fair competition in the exchanges.
The first thing Dave Jones' statement teaches us is that he does not, as Insurance Commissioner, control access to the opportunity to sell in the structured health insurance marketplace the ACA calls an exchange. Covered California's own governing authority does that. But Dave Jones knows that, so why expend the effort? The answer relates to the fact that California's exchange is not a completely open one. Not only must a company want to sell health insurance inside the exchange (and meet the statutory and regulatory requirements related to things like minimum essential benefits), a company must be permitted to do so. And California has chosen not to make its marketplace completely open to any ready, willing, and able seller. As I have discussed earlier, this is, in part, reflective of a decision to attempt to lower the cost of exchange sold products by limiting access to the exchange marketplace.
What has this got to do with state regulation of insurance? One way to view Dave Jones' decision to speak out from his bully pulpit against Anthem's participation in the small business exchange is to see it as an effort to promote price transparency in health insurance products and as part of an effort to breed some price sensitivity into California's taxpayers. It is Anthem, after all, that chose to announce a 10.6% rate hike in January, a 10.5% rate hike in March, and a prospective rate hike of 7.6% effective July 1st of this year. Another way to see Commissioner Jones' decision is as an attempt to do indirectly, through public shaming, what California's state specific health insurance law and regulations will not allow him to do directly — tell Anthem that their rate hikes may not go forward. You see, California, gives its Insurance Commissioner a few valuable things: authority to review medical loss ratios, authority to investigate proposed rate hikes though not necessarily derail them, and a bully pulpit. By current calculation, Dave Jones has attempted to use all three in his office's struggles with Anthem.
Perhaps the most interesting aspect of all of this is the cry of "unfair competition" and "unfair to consumers" from the sellers of health insurance products and from representatives of the business community that purport to represent the inerests of small business that would like to purchase health insurance products that will have increased in cost almost 30% in a six month period. The argument is that these Anthem products are popular in the small business market and that consumers (unclear whether this is understood as employers or the ultimate health care consumers — employees) are being deprived of choice if the exchange is not open to Anthem for small business products.
Fair competition law exists to protect consumers. How can it help us here? First, your perspective on this may depend upon whether you think employers are the consumers of health insurance plans or whether you think the consumers in need of protection are the ultimate consumers of the health insurance involved — employees. Second, it may be that the open exchange model has visceral appeal as pleas to increase the number of vendors in the health insurance marketplace almost always do. "If we only had more sellers…" and then you fill in the blank. Finally, it may be that the more competitive marketplace may involve levels of competition: first you compete to be able to sell, then you compete against those in the selling arena, then you enter perhaps a second or third round of competition in a sort of reverse auction format.
Both models can lay claim to the laurel wreath of free and open competition. So, it is not just as easy as it might seem to be to claim: let anyone sell, the market will sort it out. Actually, health insurance markets are notoriously distorted for any number of reasons but chief among them would have to be that the buyer on one level (the employer) is not the consumer (the employees).
If we are to continue to have a health care system funded — in significant part — by employer selected and sponsored health insurance (and that is the insurance framework of the ACA), then the clarion call for free and open perfect competition in health insurance markets rings more than a little hollow. That ship has sailed.
Instead, we can watch California and others attempt to promote their own versions of competition in highly distorted markets. And watch I will. If Dave Jones is able to use his bully pulpit to attempt to police health insurance costs in the exchange, it will be an object lesson to other states.
But noone gets to claim a monopoly on the "fair competition" mantle in this dispute. It is not that simple but, then, it rarely is.
It was H.L. Mencken who said: "For every problem there is an answer that is clear, simple and wrong."