By Tom Curry National affairs writer
updated 1/11/2010 11:32:46 AM ET 2010-01-11T16:32:46

Claim: The insurance overhaul would transform insurers into something like regulated public utilities.

A for-profit health insurer, like other profit-seeking firms, can make decisions about its investments, its profits, and its cost of services. Health insurers are subject to some regulation by state insurance commissioners and by federal laws such as the 1996 Health Insurance Portability and Accountability Act, which limits excluding people from coverage due to preexisting medical conditions. Insurance firms can, and in some cases do, compete for customers. But insurance industry critics say the competitive model has broken down and Congress must step in to take control. How about making insurance firms more like electricity, gas and water suppliers? A public utility provides an essential service, but usually operates under noncompetitive conditions where barriers to new competitors entering the market are high. State and federal regulators control the utility's services and profits.

Fact or fiction?
Fact. The Democrats' legislation would impose controls on crucial decisions made by insurers: for example, limiting how much more older customers would pay than younger ones. "Instead of replacing private insurance companies, the proposed reforms would, in theory, turn them into something like public utilities," said New Yorker financial correspondent James Surowiecki. Conservative legal scholar Richard Epstein said the legislation "turns all private health care providers into public utilities" because it controls premiums and profits. Sen. Jeff Bingaman, D-N.M., in opposing the Senate bill's requirement that insurers spent 85 percent of premiums on medical claims, said "This is very analogous to what we do with utilities." He said he couldn't support this "without more understanding of the import of it and what it would do to the insurance markets." But in the end he voted for the bill.

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