If Eric Holder ends up indicting and convicting the Blues, I'll take back every snide comment I ever made about the Department of Justice:

The U.S. Justice Department is widening a probe into whether Blue Cross Blue Shield health-insurance plans are artificially raising premiums in several states by striking agreements with hospitals that stifle competition from rival insurers.

Federal investigators and some state attorneys general have sent civil subpoenas to "Blue" health plans in Missouri, Ohio, Kansas, West Virginia, North Carolina, South Carolina and the District of Columbia, according to people familiar with the matter.

The investigation is examining whether dominant health plans around the country are forcing hospitals to sign anticompetitive contracts that unlawfully inhibit them from doing business with their rivals.

The Justice Department's investigation comes as the Obama administration seeks to rein-in rising health-care expenses that threaten to drive up the government's costs for expanding care under President Barack Obama's health-care plan. Congressional Republicans and others have said the Affordable Care Act, Mr. Obama's signature domestic policy achievement, won't lead to lower insurance premiums. Showing that the administration can counter rising premiums by encouraging greater competition could help win support for the law from a skeptical public.

The contractual provisions under scrutiny are known as "most-favored nation" clauses. They usually stipulate that hospitals must charge the insurers' competitors equal or higher prices for medical services.

Such clauses aren't in themselves illegal—they can simply be guarantees to get the best pricing available. But they can violate antitrust laws if used improperly by a dominant company to hobble competitors.

Blue plans tend to be state- or regionally-based and therefore have the market clout to strike such deals with hospitals. While national plans such as UnitedHealth Group Inc. and Aetna Inc. tend to be larger, they are more spread out and typically lack the concentration of a Blue plan in a given local market.

A Justice Department spokeswoman said: "The antitrust division is investigating the possibility of anticompetitive practices involving MFN clauses in various parts of the country."

These insurance contracts are written with all kinds of unfair and non-competitive restrictions. Did you know that when doctors sign an agreement with an insurance company to accept their users, they also agree that they won't offer lower prices to patients who don't have insurance? So even if your doctor wants to cut you a break, he can't.

They didn't use those words, but that's what they're saying, nevertheless. There are two principles at stake here: First, that discrimination against sick people is a thing of the past; and second, that the days of cherry-picking insured groups are over.

Either insurance companies can get on board, or else they are begging for Lynn Woolsey's newly-revived public option to become the law of the land. They certainly appear to be crying out for one. Here are a couple of stories that prove the point:

Insurers stop writing policies for children

This story could likewise be headlined "Insurers throw hissy fit, kick and scream on the floor, choose those least able to defend themselves as targets."

Nothing screams public option like screwing kids. Via MSNBC:

Some major health insurance companies have stopped issuing certain types of policies for children, an unintended consequence of President Barack Obama's health care overhaul law, state officials said Friday.

Continue reading »

Might be time for Steve Poizner to come in from the campaign trail and have a look at the newest rate increases. According to the LA Times, the Gang of Five here in California is ganging up on small business owners with less than 50 employees.

Five major insurers in California's small-business market are raising rates 12% to 23% for firms with fewer than 50 employees, according to a survey by The Times.

Similar increases are being felt by many small businesses across the nation, including those in Texas, Ohio and Florida — mainly the result of escalating costs for medical care and pharmaceuticals, insurers say.

Insurers claim they either underpriced their policies or had unusually high claims.

Blue Shield, for example, said hospital charges rose nearly 20% last year, while physician costs and pharmaceutical fees increased almost as much. Anthem Blue Cross also cited the cost of medical care in explaining its average rate hikes of 13% this year.

"We understand that one group that has been most hard hit by the economic downturn of the past few years is the state's more than 3 million small businesses, who we all rely on to be major contributors to our local economy," Anthem spokeswoman Peggy Hinz said.

"We want to be competitive in the marketplace, but we also want to take care of our members," Hinz added. "We work each day to do both."

Forgive me if I'm skeptical of this. It seems suspect to me that the group slammed with high increases is the same group who is eligible for a Federal tax credit of up to 35%. Further, why wasn't that tax credit mentioned in any of the reports about the rate increases? The employers they use as examples are likely to be the same ones eligible for the 35% break.

Why not mention that in this context, LA Times?

I have heard anecdotal reports that health insurance agents here in California representing one of these companies are visiting small business clients and telling them the apocalypse is upon them. Statements range from claims of outlandish premium increases to the outright falsehood that employers will only have one plan to choose from after reform. They begin by informing employers who they finally managed to shift into high deductible plans with Health Savings Accounts that HSAs are dead. (They're not dead, just reduced to reflect improved insurance options).

By the time they're done, they've convinced these small business owners that Satan lives in the form of health care reform. This is no different than what they did when California passed laws limiting auto insurers' rate increases. While these stories are anecdotal and not indicative of a widespread policy on the part of those companies, it still strikes me as part of a larger strategy to undermine confidence in the health care reform law.

What we have here is a group hissy fit thrown by the insurers who, until now, have had complete freedom to raise rates and lower benefits at will. While increases may be warranted in some cases, there's no reason to believe they're warranted to this extent or only on this group. It seems to me they chose the most vulnerable and least powerful group to pick on.

Kevin Drum has exactly the right answer for the insurers' woes:

If conservatives want to avoid the specter of federally funded single-payer healthcare in the United States, this is what they need to come to terms with. Canada provides high quality healthcare for everyone — including small businesses and the elderly — for a cost per person of about $4,000 per year. Ditto for France and the Netherlands. Britain and Japan do it for about $3,000. Ann Terranova is being asked to pay more than $6,000 per person — and that's for three working-age employees.

Insurers know single payer is still a hammer over their heads. We're seeing Vermont adopt an experimental program with it now. If it's successful, I expect other states to try it. Here in California, it's only a governor's signature away, provided we actually elect the right Governor.

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.