Without a ‘public option’ to compete with private insurers, the government
would instead police the industry. But do regulators have enough authority to make a difference?

Washington, D.C. — When Senate Democratic leaders agreed this week to remove a public insurance plan from their massive healthcare bill, they did more than quash a liberal dream of expanding the government safety net. They effectively pinned their hopes of guaranteeing coverage to all Americans on a far more conventional prescription: government regulation.

The
change sprang from a compromise made to placate conservative Democrats
wary of a new government program. But shorn of a "public option," the
Senate healthcare bill has reverted to a long-established practice of
leveraging government power to police the private sector, rather than
compete with it.

Despite the resistance among Republicans and
conservatives to more government regulation, even the insurance
industry has agreed to broad new oversight of their business in
exchange for the prospect of gaining millions of new customers.

The
expanded regulation of insurance programs ultimately could ripple
through the entire healthcare system, affecting how doctors, hospitals
and other providers care for their patients.

But the success of
this approach may well depend on whether regulators have been given
enough authority, a question that has received considerably less
attention than the ideologically charged battle over a new government
insurance plan.

Democrats in the House and Senate have filled
their bills with a dizzying array of rules and regulations on insurers.
The insurance market provisions in the Senate bill alone run nearly 400
pages.

For example, the Senate legislation would require all
insurers to fully cover federally recommended preventive health
services, such as immunizations, colonoscopies and HIV testing.

Insurance
companies would be prohibited almost immediately from rescinding
policies for people who get sick and imposing lifetime limits on how
much they pay for customers’ healthcare.

And state and federal
regulators would be required to set up procedures for reviewing how
much insurers charge customers and whether premium increases were
justified.

A more intense round of regulation would begin in
2014, when states set up marketplaces, or exchanges, where insurers
could sell plans to millions of people who do not get coverage through
work.

Companies in the exchanges would have to offer policies to
all customers, regardless of their health status. Insurers could not
charge older people more than three times what they charge their
youngest customers, an unprecedented national restriction on what is
known as age-rating.

Every insurance company that offers a plan
in these exchanges would have to provide a minimum set of benefits
determined by the Department of Health and Human Services.

"In
any other year, these changes would be cause for a White House signing
ceremony with bands and fireworks," said William Vaughan, health policy
analyst for Consumers Union.

Like any regulatory framework, however, this one has holes.

Provisions in the Senate bill that authorize companies to sell
nationwide health plans may allow insurers to skirt existing state
regulations that require them to cover many medical procedures. And the
legislation would ban insurance companies from placing "unreasonable"
limits on the annual benefits they pay — a vague standard that patient
groups fear could effectively allow the kind of caps that now leave
some consumers with gargantuan medical bills, even if they have
insurance.

Other consumer advocates worry that there are
insufficient consumer protections against high premiums, even though
millions of Americans for the first time would be required to buy
medical insurance.

Although the bill mandates that state and
federal regulators review rate increases, it is unclear how the
regulators would evaluate what insurers want to charge and how
aggressively they would restrain the industry.

"The public
option was really the best check on the industry," said Jerry Flanagan,
patient advocate for California-based Consumer Watchdog. "Though it was
small, there was an implicit threat to the industry that it could be
expanded…. And, unlike regulation, it allowed people to vote with
their feet and go somewhere else if they didn’t like what insurers were
doing."

Consumer Watchdog, the American Cancer Society and other
advocacy groups have been working with Democrats on Capitol Hill to
close some loopholes and tighten the regulations before the Senate
passes a final bill.

Senate Majority Leader Harry Reid (D-Nev.)
is expected to include some regulatory tightening in a package of
healthcare bill changes that he plans to unveil this weekend.

But Reid is unlikely to have a complete solution for the challenge that
has confronted regulators since Progressive reformers pushed the
government a century ago to require that meatpackers divulge what they
were stuffing into their sausages.

Regulators are in a
perpetual race to stay one step ahead of the industry they oversee. And
if the president signs a healthcare bill next year, lawmakers,
insurance companies, patient groups and consumer advocates will
probably be debating insurance regulation for years to come.

"All
of us will have a lot of work to do after the legislation passes," said
Ron Pollack, executive director of Families USA, an influential
Washington-based consumer group.

"We’ll have to monitor what is
happening state by state. To the extent that insurance companies fail
to adhere to rules, we’re going to have to get that fixed…. But
Rome wasn’t built in a day."

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