UPDATE: Because of the huge public outcry, Blue Cross has backed off on the policy.

As I think I've pointed out before, most of the Blues are considered to be "non-profit" in order to get certain privileges. But they are usually just parent companies for dozens of for-profit subsidiaries - with whom they contract over-priced services to earn nice, hefty profits.

We can expect more abuses (and more price inflation) if the insurance exchange makes the same mistake and treats them as actual non-profits:

One of the worst abuses of the private insurance industry is known as recission, where insurers decide to revoke the coverage of their customers for frivolous reasons. The Los Angeles Times reports today that one of the nation’s largest insurers, Blue Cross of California, has “notified [its] policyholders” that their coverage could be “immediately dropped” if they miss even a single payment:

Amid a national debate on how to make the healthcare system friendlier and more accessible, and as millions of people grapple with the loss of jobs and homes, what does insurance heavyweight Blue Shield of California do? It decides to take a key benefit away.

The company has notified individual policyholders that their coverage could be immediately dropped if they miss a single payment — or so it seems. Blue Shield says in a letter to customers that they can reapply for insurance, but with potentially higher premiums and stricter conditions.

Thankfully, a California law that mandates minimum grace periods and a decision by the company that will allow for a 28-day grace period will keep Blue Cross from immediately dropping people from coverage, as their letter threatens. The LA Times goes on to note that the the company’s pronouncement comes “after last year’s announcement that Blue Shield and Anthem Blue Cross agreed to pay a total of $13 million in fines after cancelling the policies of more than 2,000 Californians after they became ill.”

John Conyers and some allies on the House Judiciary Committee have come up with a fabulous way to get the insurance industry in line - by threatening to remove their anti-trust exemption.

Many people don't know that the insurance industry, under the McCarran-Ferguson Act of 1945, has a broad anti-trust exemption that facilitates regional monopolies. The Act allows states to regulate the insurance business instead of the federal government, but also allows that, as long as the state regulates the industry, federal anti-trust laws would not apply.

As a result of this exemption, states have seen markets for health insurance where one or two companies predominate. In the state of Maine, Wellpoint controls 71% of the market. In North Dakota, Blue Cross controls 90%. Using the Herfindahl/Hirschman Index, a metric for market concentration, a 2007 study by the AMA found almost every health insurance market in the United States is highly concentrated.

This edition of the study analyzed 313 MSAs. This compares with 292 metropolitan areas in the 2005 study, 84 in the 2003 study, 70 in the 2002 study, and 40 in the 2001 study.

In terms of market concentration (HHI), the study found the following:

In the combined HMO/PPO product market, 96 percent (299) of the MSAs are highly concentrated (HHI>1,800), applying the 1997 Merger Guidelines.
In the HMO product market, 99 percent (309) of the MSAs are highly concentrated (HHI>1,800), applying the 1997 Merger Guidelines.
In the PPO product market, 100 percent (313) of the MSAs are highly concentrated (HHI>1,800), applying the 1997 Merger Guidelines.

Here's the AMA study. Paul Rosenberg has a lot more on this.

The point is that the concentration of the health insurance market among regional monopolies leads to higher costs for consumers, almost by definition. What the legislation by Conyers (D-MI), Hank Johnson (D-GA) and Diana DeGette (D-CO) would do is end that anti-trust exemption for health insurers, allowing for enforcement in all of these highly concentrated markets. The Senate has companion legislation:

“This legislation would specifically prohibit price fixing, bid rigging, and market allocation in the health insurance industry,” said Conyers. “These pernicious practices are detrimental to competition and result in higher prices for consumers. Conduct that is unlawful throughout the country should not be allowed for insurance companies under antitrust exemption. The House Judiciary Committee held extensive hearings on the effects of the insurance industry’s antitrust exemption throughout the 1980s and early 1990s. It became clear then that policyholders and the economy in general would benefit from eliminating this exemption.

“The legislation we introduced today is intended to root out unlawful activity in an industry grown complacent by decades of protection from antitrust oversight. In doing so, we aim to make health insurance more affordable to more Americans. I want to thank my friend Senator Leahy for his leadership on the bill and for working with the House on this joint introduction.”

Many of the actions taken by the insurance industry over the years simply violate federal law. Repealing their anti-trust exemption would force the industry to end their criminal ways or face punishment. As a companion to insurance regulations designed to lower prices for consumers, but perhaps without the kind of enforcement necessary to maintain it, I couldn't think of anything better. And if nothing else, this legislation is a powerful whip to keep the industry in line as they try to extract more perks from the health care bill. Combine this with the multiple investigations into industry practices from Dennis Kucinich, Henry Waxman and others, and you have real pressure on the industry for the first time in a while.

Good for John Conyers.

Jay Rockefeller is actually the chair of the health subcommittee in the Senate Finance Committee. Any "Gang of Six," or really any legislation on the Committee, should at least have his input, if not his controlling hand. Yet Max Baucus froze him out of the legislation in favor of Republicans who will never sign on to the final version and worthless schemes like the Conrad co-op proposal (which is just a thin ploy to get Blue Cross of North Dakota, which controls 90% of the market in Conrad's state, the "co-op" label so it can access federal start-up funds). Rockefeller may have the last laugh when the bill moves into the full committee.

U.S. Senator John Rockefeller, a Finance Committee member and a strong backer of a government-run insurance option, said on Tuesday he will not support the panel's healthcare bill in its present form.

Rockefeller told reporters he was unhappy with the lack of a government-run "public" insurance option in the bill, which is scheduled to be made public on Wednesday, and had problems with some of its changes in children's health insurance and Medicaid, or healthcare for the poor.

In particular, Rockefeller wants a public insurance option instead of the weak co-ops, better affordability provisions so working people can actually use the bill, and changes to the way that Baucuscare deals with the Children's Health Insurance Program and Medicaid.

Rockefeller specifically said "There is no way in its present form that I will vote for it... unless it changes during the amendment process by vast amounts." Now, getting amendments through may not be an easy task. Each Rockefeller amendment in that committee would have to get the votes of all the Democrats plus at least a couple Republicans, if Baucus and Conrad hold firm on them. Considering that 10 of the 13 Democrats on the panel were completely shut out of the process during the Gang of Six talks, I'd expect a lot of support for what Rockefeller wants to do, but Baucus and Conrad can basically nullify anything meaningful on their own, should they want to.

Still, Rockefeller's advocacy is important because it sets the tone for Democrats with the full Senate, where votes like his will be needed. Jon Cohn explains.

A little over a month ago, right before the August recess, I spoke with Rockefeller at some length. And he was clearly wrestling with how to position himself.

No living senator has done as much to promote health reform as he has. It's the cause of his life and, for the first time, the goal is within reach. He admitted that voting against a package, even a flawed one, was difficult to imagine.

But Rockefeller also made clear his frustration with the compromises Baucus was making, whether it was replacing the public plan with a co-op or gradually reducing the subsidies to help people pay for insurance. He was particularly incensed about the changes to Medicaid and CHIP, programs to which he's devoted much of his time--and on which many West Virginians rely.

At the time, it seemed like Rockefeller was still on board, if only to help get a bill out of the Finance Committee and onto the Senate floor. But you got the feeling--well, I got the feeling--that he was near the breaking point.

Sometime since that interview, clearly, he's hit it.

Every vote is precious in the Senate, given that votes on the Republican side other than Olympia Snowe and maybe Susan Collins will not be forthcoming. Harry Reid has laid down the marker that anything less than 60 votes will lead him to go through the reconciliation process (and I don't think Reid's low poll numbers in Nevada will be much of a factor - the consequences of doing nothing on health care would be far graver for him). Therefore everyone in the Democratic caucus, essentially, represents an interest group to be satisfied. Rockefeller is standing up and saying that he's perfectly willing to vote against something that doesn't fulfill the promise of health care reform as he sees it. Bernie Sanders probably feels the same way. Maybe Barbara Boxer does. Or others. Max Baucus and his cronies will have to wrestle with that.

I can't think of a state less equipped to deal with major health insurance rate hikes than Michigan, currently mired with - this will not be a typo - 15.6% unemployment. But that's exactly what they're getting.

In the past few days, 114,000 Michigan households have received bad-news letters from Blue Cross Blue Shield of Michigan, socking individual health insurance subscribers with premium increases averaging 22%, effective Oct. 1.

Blue Cross could have said, "Hey, things could have been worse. We asked for a 56% rate hike first and dialed it back to 22%" -- but that probably would have just made folks angrier.

Instead, the Blue Cross letters simply stated, "We know every Michigan resident faces financial challenges, and we thank you for your business and loyalty to the Blues."

The two numbers, unemployment and rate hikes, have a correlation. Individual insurance has expanded by 96% at Blue Cross of Michigan in the past two years. That's because they act like a non-profit state "co-op" would in a private sector allowed to discriminate against their customers:

In just the past two years, the number of under-65 individual subscribers has grown by 59,000, or 96%, at Blue Cross, the nonprofit "insurer of last resort" in Michigan. Private for-profit insurers tend to cherry-pick younger, healthier consumers, driving older and less-healthy people to Blue Cross if they have no employer-provided group coverage.

State law requires Blue Cross to offer insurance to anyone, but it also demands that the company not lose money on its insurance products. Therein lies the rub: Blue Cross lost $133 million last year on individual subscribers.

This is that "perfect market" that conservatives like to talk about. Given the ability to discriminate over its customers, private insurers dump the sick on to Blue Cross. And because the state requires Blue Cross to break even, they must raise their premiums basically at the rate of the cost of health inflation year-over-year, often on the poorest and most vulnerable members of society.

Michigan is not the only state seeing large rate hikes in its health insurance market. Oregon small businesses are seeing double-digit rate increases this year. In California, policies have gone up 9% since 2007, three times higher than the overall cost of living. Blue Cross and Blue Shield of Rhode Island has proposed a 16% rate hike, with UnitedHealth of New England up 11.6%. Washington state consumers will see large increases as well. Overall, increases by double digits are expected nationwide.

We hear from conservatives that businesses may drop their plans under health insurance reform. Actually, that's virtually assured if nothing is done. Companies, especially small businesses, will have no chance keeping up with these ever-increasing rates and hope to compete in the global marketplace. And ultimately, those businesses who do pay for these rate hikes do so out of potential wage increases for their employees. Wage growth stagnates and people wind up with less disposable income. The money funneled to health insurance companies could be used to reverse the recession and pull us into economic recovery. In this sense, insurance companies are acting like a siphon, reducing the fuel that can be used to drive the engine of growth.

And that siphon will take more and more money out of your pocket, unless we do something now.

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(Health Care - as the rest of the world views us)

On January 29, 1956, NBC Radio, as part of their "New World" series ran a debate on the state of Healthcare in the world and asked the BBC to participate with their take on it. Representing all the interested parties were Aneurin Bevan, Member of Parliament and Labor Party Secretary for Health, Dr. Walter Elliot, Member of Parliament, E. A. Van Steenwyck, spokesman for Blue Cross and Milton Friedman, economist.

Right away, Bevan and Friedman jump into it. Friedman has a condescending tone that drives Bevan right up the wall and clearly there is no willingness on the U.S. to even consider a National Health plan.

Aneurin Bevan: “If you rely upon financial anxieties to keep people away, or to use your own words, ‘not to overuse the scarce services”, such anxieties do not exist for the rich. So they will have access to the services first of all. Is that equitable?

Milton Friedman : “Mister Bevan, I think you are confusing two very different problems. One, is the problem of the general distribution of income among people, which arises with the respect to food, clothes, housing and everything else. Medical care is a minor item . . .

Bevan: “A minor item??

Friedman: “Medical care accounts in your country as well as mine for no more than five percent of the total expenditure on consumption. It accounts in your country as in mine for less than the cost of tobacco plus alcohol”.

Walter Eliot: “Now wait a minute – I’m holding myself in with the greatest of difficulty. I was a doctor. I was on the gate. I compiled these waiting lists, and I can assure you that in a good many cases, people who urgently needed treatment weren’t getting it because there wasn’t a hospital accommodation there. Now, one of our difficulties was this very expansion of hospital accommodation. Do you think in America you can look after this enormously increased hospital accommodation which will admittedly be necessary . . .

Friedman: “We don’t rely on donations to run our hospitals. About 90 percent of all the money spent by our voluntary hospitals comes from patients.”

It more or less slides downhill from there. Needless to say, there is no compromise to be had in this debate, but it's interesting to hear just how enmeshed, even in 1956, the lobbies of big Insurance, Big Pharma and the AMA were with the question of Health for the U.S.