Impermissible Ratemaking in Health-Insurance Reform: Why the Reid Bill is Unconstitutional

Abstract

One of the most neglected features in the debate over HR-SA 3590, the Reid Bill, is the level of systematic coercion that it places on health insurance issuers, especially in the individual and small group market. This paper concludes that the combined impact of these restrictions severely compromises the likelihood that these health insurers can remain in business under legislation that eliminates virtually all underwriting discretion in the selection of covered parties and the rates that they charge, imposes minimum restrictions on the services that they supply, and imposes heavy global mandates on the administrative costs that they must bear. This extensive level of regulation rests on the flawed premise that price controls can achieve efficiencies that are not otherwise attainable in markets. The full weight of the Reid Bill is tantamount to treating these insurers as public utilities, who should, but do not receive anything close to, the constitutionally mandated, risk-adjusted rate of return.