Eight reasons why the health-insurance industry should change its position and support reform.

How to fix health policy.
March 8 2010 4:20 PM

Insuring Against Success

Eight reasons why the health-insurance industry should change its position and support reform.

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3) No public option. From the beginning, health insurers' biggest worry about health reform was that it would create a "public option" government health insurance plan to compete with private health insurers to sign up those 30 million uninsured. But the public option never made it into Obama's proposal, and it's unlikely to get shoehorned in later, because doing so would kill its (already weak) prospects of passing the House, where success hinges on winning over conservative Democrats. Obama last week reportedly told House liberals that he was "personally committed" to creating a public option after the bill is passed. But as I've noted before, if it's this difficult to create a public option today, trying to do so after the federal government makes private health insurers half a trillion dollars richer will surely be much more difficult. As a public-option supporter myself, I take no pleasure in noting this. But if insurers really want to smother the public option, their smarter long-term policy is to get the health reform bill passed.

4) The Cadillac tax has been emasculated. House Speaker Nancy Pelosi reportedly calculates that after extensive negotiations with labor groups and others, only 20 percent remains of the original proposal to tax high-cost "Cadillac" health insurance policies. A Feb. 22 column by David Brooks in the New York Times and a March 7 editorial in the Washington Post pronounce this a terrible tragedy. For reasons I've explained elsewhere, it is actually a blessing. But forget the high-minded dispute about what's the best policy. Even Brooks and the Post editorial board would agree that the steady erosion of the Cadillac tax is excellent news for insurers. Another point of agreement between Brooks and me: The Cadillac tax, which has already been delayed, will probably get killed outright before it ever takes effect. Brooks sees this as a demonstration of the squalor of special-interest politics. I see it as acknowledgment that the tax is misconceived and unworkable. From insurers' point of view, it doesn't make the slightest difference which of us is right. (Just for the record, though: I am.)

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5) Obama isn't serious about imposing price controls on insurers. I've said it before and I'll say it again: I don't believe Obama truly wants to tell health insurers what they can charge customers. The White House proposal would empower the Health and Human Services Department to review and roll back health insurance premium hikes nationwide—something never contemplated in either the House or the Senate bill. This poses a potential administrative nightmare, and I think the president probably knows that. It's pure grandstanding, something to deal away in order to get a bill. But if insurers don't cut a deal, the rollback plan just might blunder its way into the final bill.

6) Skin in the game. Health insurers and others complain that the health reform bill does little to control doctor and hospital bills, especially in the private sector. That's true. Health insurers also worry that planned cuts in Medicare fees could lead hospitals and doctors to engage in "cost-shifting," i.e., to increase what they charge private insurers to make up for what they're losing to the government. But let's get serious. Whether health reform becomes law or not, Congress will eventually impose some curbs on Medicare spending, because it must. Only under health reform, though, will $411 billion in subsidies to private health insurers give the government, for the first time ever, a meaningful stake in controlling rising private doctor and hospital fees. Health costs rise faster in the private sector than they do in the public sector, because the government wields greater market clout than private insurers do. Between 1970 and 2003, for example, private health insurance spending rose 10.1 percent annually, as compared with 9 percent for Medicare. If you want to slow medical inflation in the private sector, it makes sense to expand the government's investment in private health care.

7) If health reform fails this time, existing problems will worsen and Congress will be back with a less hospitable proposal to health insurers. "As bad as they are," Arnold Relman wrote in the July 2 New York Review of Books, "things will have to get still worse before major reform becomes politically possible." Granted, Relman sees things getting worse even if Congress goes ahead and passes the health reform bill, which Relman doesn't consider "major reform." Granted, too, the trend in recent years has been for the proletariat, whenever it's getting screwed by big business, to demand smaller government. But surely there's some breaking point at which the public will demand much greater intervention in the health economy. I believe we'll reach it whether health reform passes or not. But it seems logical that we'll reach it sooner if health reform doesn't pass. Perhaps such Machiavellian reasoning ought to make a single-payer advocate like me an opponent of the Obama plan, but I just can't oppose legislation that would bring immediate relief to the uninsured and the underinsured. Health insurers have a simpler calculus to make. To put off a real crackdown on for-profit health insurance, sign on the dotted line today.

8) There's a decent chance health reform won't pass even if health insurers support it. Even if the previous seven arguments are wrong, the health reform bill is so tied up in partisan and abortion politics that AHIP could easily endorse it and it still wouldn't pass. Were that to happen, AHIP would at least have bought some good will.

In Washington, you seldom get in trouble for opposing something. Billy Tauzin, president of the Pharmaceutical Manufacturers of America, is leaving his post this summer, and it's rumored the reason is that drug companies thought he got suckered into supporting health reform. (In truth, if anybody got suckered it was the White House, which pledged foolishly to limit PhRMA's losses to $80 billion.) Ignani's continuing intransigence may reflect anxiety that she might suffer a similar fate. But what's best for Ignani's career is not the same as what's in the insurance industry's best financial interest. Were I chairman of WellPoint, I'd pick up the phone and demand that Congress pass Obama's health proposal right now.

E-mail Timothy Noah at chatterbox@slate.com.

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Timothy Noah is a former Slate staffer. His  book about income inequality is The Great Divergence.