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Postman on Politics

Chief political reporter David Postman explores state, regional and national politics.

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October 24, 2007 2:31 PM

A look at the credibility of insurance rate study

Posted by David Postman

One of the central disputes in the campaign over Referendum 67 is whether insurance rates would go up as a result of the Insurance Fair Conduct Act. Insurers, who want the law repealed and have poured millions into the Reject R-67 campaign, say rates are sure to go up. The campaign paid about $25,000 for a study that insurance premiums would go up $650 million a year if the law stays on the books.

Supporters of the law say that's nonsense. State Insurance Commissioner Mike Kreidler, who is campaigning to save the law, says if insurance companies act in good faith there should be no rate increases. And the Approve 67 campaign spokeswoman, Sue Evans, consistently calls into question the integrity of the study done by Milliman Inc., a Seattle consulting firm with expertise in insurance and employee benefits. She told The Olympian recently during an on-line chat:

Milliman is bought and paid for by the insurance industry and is hardly an independent study.

So I was surprised then to see today that Milliman is in the news as playing a key role in Kreidler's efforts to draft a plan for universal health-care coverage. Peter Lewis writes at Crosscut today about Kreidler's so far low-profile effort to explore how to develop a plan that would provide both "catastrophic coverage and every-day medical care coverage." Milliman, Lewis writes, is working with Kreidler to figure out what the plan would cost.

The Office of the Insurance Commissioner also contracted with Milliman last year to help Kreidler respond to the governor's Blue Ribbon Commission on Health Care.

Can Milliman's work for the insurance industry be so easily dismissed if the firm has enough credibility to help Kreidler prepare his plan for universal health care? I've asked Evans that question and will post her answer when I get it. I also asked Todd Myers, a spokesman for the Reject campaign, what he thought.

"The trial lawyers and Commissioner Kreidler should just admit that Referendum 67 will significantly increase insurance costs. Commissioner Kreidler's own analyst of choice, Milliman Inc., says it will cost consumers $650 million more every year. Just as he tries to dismiss that fact, he turns around and hires Milliman for his next big project. When politicians want to have it both ways, it is pretty clear they aren't being honest."
Forecasting rate hikes due to legislative changes seems to this layman to be less than a science. There are a lot of assumptions that had to be made in the Milliman study, which I've looked at and attempted to digest. That's what economic forecasts are after all, estimates based on a set of assumptions. It is not outlandish to think rates could go up. The governor's Office of Financial Management said in its analysis of R-67 that premiums may increase.
Due to the conflicting research, there is no clear guidance for estimating the magnitude of the fiscal impact of potential increases in court costs, insurance premiums, or recovered claims.

My point is not to settle the question of whether rates would go up or how much they'd go up. After reading the Milliman study I can't say if $650 million seems right or not. But one of the few things the two sides in the R-67 fight can agree on is Milliman consultants are experts in this area.

And campaign rhetoric surrounding the Milliman report could come back to bite Kreidler. If he depends on the firm to do a cost analysis on universal health coverage, what's to stop opponents from claiming that the costs would actually be much higher and were artificially kept low for political purposes? Opponents could say, for example:

Milliman is bought and paid for by the insurance commissioner and is hardly an independent study.

MORE: Sue Evans responds:

"First of all David, read the study or at least scan it. It was bought and paid for by the insurance industry and has a disclaimer about its contents on the coverage page. It cannot be considered an "independent" study. If you sourced a news story like they sourced this study, you'd be out of a job, or at minimum, at Fox News.

"Reputable consumer groups in the nation who have studied insurance industry issues say Milliman is primarily used by the insurance industry."

She included this from The Olympian:

"Robert Hunter of the Consumer Federation of America, which lists the publishers of Consumer Reports among its primary supporters, says Milliman mainly works for insurers and is not a neutral source. He said most states allow much higher damages to be recovered than what Ref. 67 would allow.


And Doug Heller of the Foundation for Taxpayer & Consumer Rights, based in Santa Monica, Calif., said Washington's insurance commissioner could help hold down premiums in the state by making sure that litigation costs are not passed on to consumers."

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