Barry Senterfitt
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The ongoing debate regarding national healthcare reform has focused, in no small part, on whether reform should include a
public option to compete with the private sector. The proposals have potentially far-reaching, adverse consequences for private
sector insurance companies, including a sharp increase in the cost of doing business, and they might have an effect on how
insurers conduct their business going forward.
Janet Farrer
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Proponents of a public option claim that it would lower individual insureds' healthcare costs by creating a lower cost alternative
to the private market. Private sector health plans, however, are concerned that those lower healthcare costs, if realized,
will result not from increased efficiency or competition in the healthcare system but instead from simple cost shifting to
the private sector.
IT'S NOT THE SAME
This issue is exacerbated, at least for the private sector, by related concerns that the public option will not compete on
a level playing field with private health plans. For example, the public option might not be subject to premium and other
state-imposed taxes, might not have costs associated with maintaining adequate capitalization, and might not be subject to
the same costs associated with regulatory compliance. At the same time, private sector companies must bear all of these costs, yet somehow compete in the marketplace with the public
option exempted from the costs and from any need to return a profit.
Other aspects of the structure, while not immediately identifiable as having a potential to increase private-sector costs,
could have a significant effect on the way the private sector conducts the business of insurance. For instance, policies currently
being debated might drastically alter provisions in antitrust regulation.
Currently, the private sector health plans and the business of insurance are regulated on a state-by-state basis, with the
insurance industry benefitting from an antitrust exemption via the McCarran-Ferguson Act.
All of that may change, however. For instance, as of presstime, President Obama had indicated that Congress should revisit
the McCarran-Ferguson Act and, specifically, provisions in that act exempting insurance companies from antitrust exposure.
There have also been discussions that a federal charter should be drawn up under which the federal government, not the individual
states, should regulate insurance.
Finally, one aspect of the healthcare debate that has received less national attention, but is of great interest to the private
sector, is the extent to which states may enact their own healthcare reforms.
Some states, for instance, have recently entertained vigorous debates related to regulation of minimum payments to doctors
and hospitals and reforms to the small group and individual markets. And with all this activity, there is very little attention
to the factors driving healthcare costs and almost nothing to address that in the proposed legislation.
Most proposals involve a provision prohibiting exclusions for enrollees' pre-existing conditions, which would essentially
provide guaranteed issue insurance coverage. This too has the potential to increase costs.
This column is written for informational purposes only and should not be construed as legal advice.
Barry Senterfitt is a partner in the insurance industry practice of Akin Gump Strauss Hauer & Feld LLP in the firm's Austin, Texas, office.
Janet Farrer is an associate at Greenberg Traurig LLP, Austin, Texas.
