Regulatory capture and Blue Shield of California

Blue Shield of California is planning rate hikes of 59% for some and arrogantly calls them “reasonable [and] not excessive.” Yet the state can do nothing to block it. This is called regulatory capture. Private companies rig the rules via lobbyists and pliant politicians so that regulatory agencies have no power.

Blue Shield did promise refunds to policyholders if the auditor they hired to investigate themselves found their rates to be excessive. Now hold on for this shocker – the auditor, who presumably was paid very well by them, said their rates were not larcenous, predatory or anything like that and instead were just due to the magic of the marketplace or some such evasive blather. In another gaping loophole, any refunds made by Blue Cross would of course be voluntary.

It gets worse. The California Department of Insurance has no power to block rate hikes. It’s obvious this has been engineered that way on purpose.

Regulatory capture occurs when a state regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry or sector it is charged with regulating. Regulatory capture is a form of government failure, as it can act as an encouragement for large firms to produce negative externalities. The agencies are called Captured Agencies.

The California Department of Insurance is a captured agency.


  1. Funny how price increases are one issue on which the supposed health care reform legislation was silent. And how those health insurers who are supposedly being reformed by the legislation oppose its repeal. I’m sure it’s because they have our best interests at heart.

  2. This will just mean more people that can’t afford it are off the hook for paying the penalty. If their plans go up that much while salaries stay the same, they’ll go well over the threshold for the formula used to mandate purchase.

    If a plan is not offered within a certain percentage of your annual salary, about 10% I believe, you are not only not obligated to buy insurance, you are also not subject to a penalty for not getting it.

    It’s still grand theft, since it means we’ll still have tons of uninsured people, and those of us that can afford it now will find it that much more expensive. But then there are mandates that the states start to provide plans too in the near future to compete with the big blues. That should be fun in 2012 when that kicks in, assuming it’s not repealed first.

    • It’s also grand theft because if your income is low enough, the taxpayers will kick in billion$ to buy your health insurance, regardless of how high the premiums are. Yes there’s a cap, but it’s still a(nother) ton of money transferred from Treasury into corporate hands.

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