The Guest Blog

Tony Fratto: Instead of Fixing Health Insurance Markets, Obama Plans to Fix Prices

I suppose it’s possible President Obama could have come up with a more anti-market reform to deal with its concerns over higher health insurance rates, but short of creating a single-payer health system, creating a seven-member panel to dictate the prices of health insurance is pretty close.

The proposal, as reported in the New York Times this morning, would give a small panel appointed by the president the power to block what it sees as “excessive” rates for health insurance policies sold to individuals – basically, a price-setting panel.

The White House, flailing to find traction for the huge health care spending plans developed by congressional Democrats, hopes that outrage over a planned rate increase by one California insurer will help to turn public opinion around. The White House will say that anyone who opposes the President’s idea to fix prices must support increases in health insurance premiums.

That’s a false choice, of course, but it won’t stop them from trying to make the case.

What is “excessive”?

What are legitimate costs to factor into rate increases?

Is there differentiation in markets?

Is one firm an outlier?

Are there other options?

Is a firm offering a different type of coverage?

Are rate increases keeping up with costs, including wages for health providers?

Is there any such thing as a rate increase that would be acceptable to a small, powerful, politically sensitive panel appointed by the President of the United States? If a 39% rate increase is deemed “excessive”, what about a 29% increase? How about a 19% increase? Is even a 9% increase politically acceptable.

Regardless of any external factors that would lead to pricing differentiation, for a presidential panel there would be no “politically acceptable” rate increase above the overall rate of inflation. The White House will be answerable for the price and the quality of service provided to every health insurance consumer.

Make no mistake: having a White House-appointed panel set prices in health insurance is – effectively – government-run health insurance, and far more onerous than the so-called “public option” rejected by Congress and the American people over the past year.

There was an opportunity to for President Obama to start over on health insurance reform this week, scrap the monstrosity created by congressional Democrats, and work for a truly bipartisan, market-oriented effort. Rejecting this opportunity, the White House is instead planning to use the failed blueprint created by Democrats on the hill, and adding this decidedly anti-market plan to the mix.


Tony Fratto is a CNBC on-air contributor and most recently served as Deputy Assistant to the President and Deputy Press Secretary for the Bush Administration.