Gov. Deval Patrick is trying to rein in the cost of health insurance by stepping up state regulation of insurers and health providers, but he took the opposite approach two years ago with automobile insurance.
At the time, the automobile insurance market in Massachusetts was the most heavily regulated in the country. The state insurance commissioner set the rates insurers charged drivers, prompting some companies to complain that the heavy-handed regulation discouraged competition and contributed to higher-than-necessary premiums.
Nonnie S. Burnes, Patrick’s insurance commissioner at the time, shifted to a system of what she called managed competition, where automobile insurers were free to set their own rates subject to approval of state regulators.
No definitive study has been done on the impact of the regulatory change, but the Patrick administration says reducing regulation of auto insurance has paid off for most good drivers. One study paid for by the state indicates Massachusetts consumers sliced more than $270 million off their auto insurance premiums in the first year of managed competition and average premiums fell by 8.2 percent.
With health care, Patrick is moving in a different direction. He has filed legislation that would impose price controls on some aspects of medical care and last week his insurance commissioner, for the first time ever, rejected 235 of 274 premium hikes requested by insurers for their small business plans.
Seven health insurers responded by suing the state in court, saying the premium rejections will cause them to lose more than $100 million. Insurers have also stopped offering small business health insurance plans to new customers. In their suit, the health plans accuse Joseph Murphy, the state’s insurance commissioner, of “engaging in a reckless course of action sure to undermine the financial stability of those plans and of the Commonwealth’s health care market.
Treasurer Timothy Cahill, who is running as an independent for governor, says Patrick’s approach will bankrupt smaller insurers without addressing the rising cost of health care. He accused Patrick of flip-flopping regulation, adopting one approach on auto insurance and a very different one for health insurance.
Murphy, the current insurance commissioner, could not be reached for comment today. But Burnes, Murphy’s predecessor, says the administration’s approaches to auto insurance and health care are not inconsistent.
“The auto rate system was highly over-regulated and consumers paid too much,” Burnes, who is currently a senior fellow at Northeastern University, said in an email. “Under managed competition, the Division of Insurance allows the companies to propose their own rates but the division retains the ability to reject rates that are excessive.”
Burnes said the division has always had the power to reject excessive premiums for small business health insurance plans but never exercised it. She said the administration is now using that power to rein in health insurance costs.
“In both cases, the administration is trying to protect consumers from excessive rates,” she said.
Burnes says her push for auto insurance managed competition was an effort to bring down the cost of the insurance itself and not the cost of what the insurance covered, such as auto body work. She said the rise in health insurance is driven partly by the cost of medical care, so it makes sense for the administration to regulate insurance premiums as well as cost of medical care.
