HAPPY APRIL FOOL'S DAY! by Jon B. Hurst

It is April 1, and consumers across the Commonwealth have reason to rejoice! Today is the day new competition and double digit premium reductions enter into the state health insurance marketplace. This is indeed a grand day—one that will benefit all consumers, all employers, and all taxpayers. Today, the health care industry—a for-profit industry that has been previously heavily regulated—forgoes the modest reductions or modest increases we have seen in recent years, and grants us the impressive decreases we all deserve.

This consumer benefit has been a long time coming. In any industry you must have either competition or regulation to protect the consumer. To be fair, health insurance and health care providers have been strictly regulated for decades, keeping our increases in the low single digits in most years, and granting us rate reductions in other years. This has worked relatively well for consumers, yet now allowing for more rate setting flexibility like what occurs in other states is bringing in new insurers and new competition, and forcing dramatic rate reductions for most of us.

In my own experience, I am moving to a new health insurer this month that will save me about $800 per year.

It was just four years ago I was paying about $4000 per year for my health insurance premiums. Now back then I was insuring three teenage sons—notoriously bad health insurance risks. Today I still have two college aged sons on the policy, yet my new rates will be roughly half what they were just four years ago. In this bad economy, I am ready to break out the champagne!

Now contrast the health care and health insurance marketplace with the less scrutinized auto insurance industry. With auto insurance you really haven’t had regulation or competition in Massachusetts. This incredible situation has lead to double digit increases each and every year for the smallest of purchasers for nearly a decade. Yet this auto insurance cost increase situation hasn’t received any where near the legislative, regulatory or consumer group scrutiny as health insurance.

Why the difference in rate directions and public scrutiny? Maybe it is because the auto insurance industry and repair industry are all “non-profit.” Yet that non-profit status hasn’t precluded the seven figure packages at the largest insurer, nor five figure board fees. Unfortunately it appears that historically too many groups and opinion leaders have taken the side of the receivers of our auto insurance dollars out of misplaced trust, rather than taking the side of the payers of those dollars.

Maybe it is because auto insurance premiums are generally paid for by the employer or the taxpayer—unlike health insurance that comes out of our checking account each month. This situation has allowed for unfair rates, including prohibitions on group buying for small purchasers, while large purchasers negotiate their premiums, get discounts and don’t even file their rates with the state. In addition, self-insured purchasers operating under federal law protection (representing 40% of the market) don’t have to follow the expensive state mandated coverages. That loophole exists while the small business purchaser is forced to take costly, unnecessary coverages--like auto detailing services.

Maybe it is because in the auto insurance industry you have to have “Cadillac” coverages for everyone, which is great for the insurer, the repair shops, the part suppliers, and for heavy users of the system; but it hurts the poor consumers who want to manage their risks and control their costs. Many of those consumers are not only safe drivers; but they would also rather “self-insure” for part of their coverages, and pay out of pocket for tune-ups, oil changes, minor fender benders and for generic parts. That “self-insurance” practice keeps the money in the consumer’s hands, not in the industry’s, and helps prevent unnecessary cross subsidies from good risk to bad.

Maybe it is because no one is questioning the need for or the cost of an unprecedented expansion of high end motor vehicle repair shops, particularly at a time of flat or reduced population levels. The positive spin is that I guess the building boom is good for the construction industry if not the rate payers.

Maybe it is because there are basically only four auto insurers in the state—one of which has so much of the marketplace, it would be considered a monopoly in any other industry. Contrast that with our newly robust health insurance market, where national players are now seeking market share.

Maybe it is because in the auto industry the insurers and the repairs shops are a bit too cozy and do not have that same adversarial relationship that exists in the health care industry. Insurers are supposed to protect their client—the consumer—not work together vertically on roadmaps for putting more money into a growing industry black hole. Furthermore customers are not adequately lead away from having their cars repaired at the higher cost dealerships, which use only the “genuine” manufacturer replacement parts, and are so high on all the hot new costly products like synthetic motor oil. In contrast, in the health care industry, the most costly may not be considered the best option nor does it ensure quality. Billings are uniform and records are high tech. And in health care the negotiations and pricing for reimbursements for providers are all out in the open and are fully competitive.

Maybe someday we can have in the auto insurance marketplace what we have in the health insurance marketplace. But until then, I guess we have to live with $20,000 annual family auto premiums contrasted with $2,000 health insurance premiums.

Oh well, with a friendly wink to my friends in both industries, I wish you all a Happy April Fool’s Day!

Jon B. Hurst is President of the Retailers Association of Massachusetts