The Wall Street Journal reports this week on a threatening letter sent by Health and Human Services Secretary Kathleen Sebelius to insurance companies, regarding their upcoming bids for Medicare Advantage plans. (Medicare Advantage pays private insurers a set amount and typically the patient pays an additional premium.)
[Sebelius] warned the companies not to increase premiums...
... The health overhaul will impose drastic payment cuts to insurers that run [Medicare Advantage] plans, and consultants say insurance companies need to begin adapting now. … the law calls for a gradual reduction in government payments to insurers, totaling $136 billion
The Obama administration and Senate Democrats say that passing those costs [to seniors, through higher premiums] ... is unfair. In her letter, Ms. Sebelius warned insurers that she will deny insurers bids if they include excessive price increases.
So follow that chain of events: the Obama Administration makes a $136 billion cut in Medicare Advantage to help pay for Obamacare. That means they pay $136 billion LESS to private insurers. So insurers increase premiums to cover the difference. The Obama Administration responds to this predictable course of events by ... threatening insurance companies.
If this smells like a clumsy attempt to impose price controls on Medicare Advantage plans, well, that's because it is.
The Atlantic's Megan McArdle says we've seen this story before:
The administration doesn't seem to have offered any evidence that insurers are overcharging; basically, they're saying that they ought to underprice their product, even if that means losing money. Which is what has happened in Massachusetts, where the state insurance regulator refused substantial rate increases, even though as far as I know they never found an actuary to sign off on their orders. The insurers posted big losses shortly thereafter.
After that, many insurers stopped offering new plans. Will they soon quit the business, leaving government totally in control? We'll see.
Welcome to Obamacare.
HT: Peter Suderman.