The health insurers stumble into an argument for a public option.

How to fix health policy.
Oct. 13 2009 7:05 PM

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The health insurers stumble into an argument for a public option.

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Illustration by Robert Neubecker. Click image to expand.

Health reform cleared the Senate finance committee, 14-9, without a public option. Now the trick is figuring out how to put it back in. One powerful argument for doing so comes from an unlikely source: the private health-insurance lobby.

On the weekend before the Senate finance committee vote, America's Health Insurance Plans released a report by Price Waterhouse Coopers stating that the bill would cause premiums to increase 32 percent over the next 10 years. Premiums would rise, AHIP's report said, for seven reasons:

    1. The bill's "individual mandate" (i.e., its requirement that everyone obtain health insurance) had been weakened so much through exemptions and reduced tax penalties that insurers would fail to attract sufficient healthy new customers to offset the new customers in poor health whom they would no longer be permitted to turn away or penalize with higher premiums.
    2. The bill's limit on how much more insurers could charge older people versus younger people would raise premium prices too high for younger people.
    3. New minimum benefit requirements would increase insurers' costs.
    4. The combined effect of the previous three changes would further drive young, healthy people away, requiring health insurers to raise premiums ever-higher for the sickly older population that remained.
    5. A new excise tax on "Cadillac" (i.e., unusually generous) health insurance plans would drive premium prices even higher.
    6. Restrictions on Medicare and Medicaid spending would cause hospitals to shift costs onto private insurers.
    7. New fees on various health industry sectors would drive premiums still higher.

Taken together, these reasons don't argue that health reform needs to be tweaked. They argue it needs to be abandoned altogether.

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In a press releaseissued after the finance committee vote, AHIP President Karen Ignani said that her group continued to support "bipartisan health care reform." It was quarrelling only with the finance committee bill's "workability and cost." But most of AHIP's seven reasons for its eleventh-hour objections have been a given with health reform all along.

It was always clear that imposing an individual mandate would have to be done delicately, lest it provoke a rebellion among voters. Distributing the cost of insurance more evenly among different age groups—which is to say, among people who tend to get sick and people who tend not to—was always a central reason to enact health reform. So was the imposition of minimum benefit requirements. Cost-shifting is a reality (albeit somewhat exaggerated by reform opponents; by one estimate, Medicare and Medicaid cost-shifting accounted for only 12 percent of the increase in private health insurance costs between 1993 and 2001). It therefore should surprise no one that putting the brakes on Medicare and Medicaid spending may cause some hospitals to charge private insurers more rather than find ways to spend money less wastefully. But what is the federal government supposed to do? Write a blank check to Medicare and Medicaid? None of these reasons AHIP cites for opposing the bill in its present form can be changed significantly; they're intrinsic to reform. The best AHIP might hope for would be to defeat the tax on Cadillac health plans (substituting, perhaps, the House's surtax on high incomes) and to knock back the other new health care fees.

How does health reform propose to curb rising premiums? The finance committee bill includes several mechanisms for doing so, all of them ignored in the AHIP report. Price Waterhouse Coopers admits this freely; in a press statement released Oct. 12, after the report had caused a furor, it said:

The reform packages under consideration have other provisions that we have not included in this analysis. We have not estimated the impact of the new subsidies on the net insurance cost to households. Also, if other provisions in health care reform are successful in lowering costs over the long term, those improvements would offset some of the impacts we have estimated.

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