It’s been a little over a week since the new health care law was signed into law and already the process of gaming the new regulations to maximize health insurance industry profits has begun.

We first heard of the health insurance industry’s plans to the game the system when they started talking openly about not needing to cover children with pre-existing conditions under the new law. Although the insurers quickly backed down I think David Dayen is right. The insurers got what they want: a way to redirect the blame for jacking up people’s premiums on the new law and sick children.

Of course blaming rate increases on a few very sick children is ridiculous when you have top health insurance executives getting massive raises. WellPoint’s CEO’s compensation increased by 51% to $13.1 million. For those keep score at home that money could have been used to avoid dramatically increased premiums for roughly 3,000 people during these tough economic times. It’s a good thing we need not create a strong cost effective public option alternative because that competition might actually have force WellPoint to use most of that money to keep their premiums low in order to maintain customers.

Since the new law at the insistence of the health insurance companies left most of the implementation, set up of the exchanges, and enforcement to the states, insurers will have a much easier time gaming the new system and beating pro-health care reform advocates on 50 smaller battlefields. Crippling important consumer protections and regulator enforcement mechanism at state level should be easy given the strong opposition to the bill in many Republicans states and how many state insurance commissioners are already far too friendly with the people they are meant to police.

The insurers and their allies in the Chamber of Commerce have already said they are prepared to spend big money influencing the process of writing and implementing the new federal and state regulations. This is a plan to the kill as much of the good in the new law as they can, a death by a thousand paper cuts. It’s a task clearly made easier by the terrible design of the new law.

The new law did not create a national exchange to provide a standard regulator floor for the whole country, nor did it give a regulatory enforcement mechanism the full power of the federal government. The law also did not create a national public alternative that would have served as a powerful counterweight to the private insurance companies, providing real competition in the market while providing the government with a large direct financial stake to make sure the new consumer protections are not gamed. A repeal of the insurers anti-trust protection wasn’t included, which would have offered the Federal Trade Commission a bigger oversight role; not even a new National Insurance Rate Authority was established. Instead people have been left to the mercy of the large private insurance companies with the rather thin hope their state will try to use the new law to rein them insurers’ greed.

The terrible decision to enact marginal reform right on a national basis will be a mistake that will haunt us for years. Look at the relative success of Medicare as compared to Medicaid; you’ll find clear examples which demonstrate how a big mistake it was to go with a state-based system. Reform advocates will probably spend the next few decades trying to undo the damage of this foolish state-based design.

In the meantime the insurance companies are off and running and their lobbyists are going to be extremely busy. The gaming of the new system has already begun  in state legislators’ and insurance commissioners’ offices, and in regulatory drafting committees far away from scrutiny by the media and the public. Let’s just hope the whole thing is not completely gutted between now and 2014 when the biggest changes to health care begin.