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The insurance industry is in the business of predicting the future, sifting through statistics about risk and then setting a price to insure against it. I wonder, however, whether the calculations that led it to oppose health care reform were actuarially sound. If the bill fails in Congress, health insurers will likely be worse off.
Insurance is the only major sector in the health industry to actively oppose the health reform bill. Its lobby group, America's Health Insurance Plans, initially indicated a willingness to collaborate on the legislation and specifically to tolerate new regulations on matters like guaranteed issue (a prohibition on refusing customers based on pre-existing conditions) in exchange for an individual mandate (a legal requirement that everyone have health insurance). But shortly before the Senate finance committee completed its markup of the bill in October, AHIP issued a report claiming that the bill's various shortcomings, chief among them a weak enforcement mechanism for the individual mandate, would drive premiums 14 percent higher than they would otherwise be across the board. That was a far more dire estimate than the Congressional Budget Office's calculation the following month. The CBO said that health reform would increase premiums in the nongroup market by 10 percent to 13 percent—and that this would be more than offset by new federal subsidies for the majority of purchasers, and would reflect in part an increase in the policies' value. Health reform, the CBO found, would not increase premiums in the employer-based market, where most of us get our insurance.
Over time, AHIP has refined its message. Initially its president, Karen Ignani, emphasized the weak individual mandate. But the individual mandate has proved unpopular, and AHIP's allies in the Republican Party have taken to arguing (without much basis in truth) that it's unconstitutional. (Never mind that the most prominent among them, Sen. Orrin Hatch, R-Utah, co-sponsored a bill in 1993 that included an individual mandate.) So now Ignani emphasizes that health reform does too little to control rising doctor and hospital fees, a matter of much broader concern.
I can sympathize with Ignani—to a point. Profit margins in the health insurance business aren't especially great. On Fortune magazine's list of the 53 most profitable industry sectors, health insurance ranks 35th. On the other hand, insurers' relative difficulty at making a buck has led them to behave in socially irresponsible ways. A March 3 Goldman Sachs report unearthed by Sam Stein of the Huffington Post (and lately flagged by the Obama White House) quoted an insurance broker saying that price competition was down (reflecting health insurers' trend toward local monopolization) and that insurance carriers "seem more willing than ever to walk away from existing business" by jacking up prices. A 2009 underwriting guide from BlueCross BlueShield of Texas suggests that, in the individual market, insurers are surprisingly unwilling to take on new business, too, unless the prospective client is ludicrously healthy. In her 2005 book Bait and Switch, Barbara Ehrenreich wanders into a hotel conference room where MetLife executives are gathered and watches them discuss "how many claims they can reject before they drive the client away." Health insurers continue the practice of "rescission," wherein they dump policyholders after they get sick based on trivial errors in their paperwork.
WellPoint, which is heavily concentrated in the nongroup market, is "somewhat exposed to the 80 percent individual MLR floor contemplated in the Senate bill," according to a March 4 report by the investment bank Cowen & Co. that was unearthed by Ezra Klein of the Washington Post. The MLR, or medical loss ratio, represents the percentage of the premium dollar that an insurer spends on health care. Although the AHIP has claimed an industrywide medical loss ratio of 87 percent, it's actually more like 81 percent and has been falling steadily since the early 1990s. In November an investigation led by Sen. Jay Rockefeller, D-W.Va., found that in the nongroup (or what Cowen & Co. calls the "individual") market, the average medical loss ratio was 79 percent, which helps explain why Cowen & Co. thinks the Senate bill's 80 percent minimum poses a problem. "Should [health] reform fail, WLP would be a primary beneficiary," the report concludes.
I'm no industry analyst, but I wonder whether Ignani and Cowen & Co. have assessed health insurers' interests correctly. The trend described above doesn't sound terribly sustainable: rising prices, fewer customers, a shrinking proportion of the premium dollar spent on health care, and routine cruelty toward frail and sickly people. "In the longer term, reform would have been better for them," Les Funtleyder, a health care strategist for the investment bank Miller Tabak and Co., told the New York Times in January, when health reform was presumed dead. The Obama bill has some obvious drawbacks for insurers, but they should consider its potential benefits.
1) A guaranteed customer base. Obama's health reform plan would expand the health insurance market by 30 million people. It would do this by handing the health insurance industry $411 billion in subsidies. (These numbers come from the RAND Corporation; the Congressional Budget Office hasn't scored the president's proposal.) Not a few people on the left oppose health-insurance reform on the grounds that it's a giveaway to corporate America. "It's a much better bill for insurance company investors than it is for the American people," says Rep. Dennis Kucinich, D-Ohio. "The Health Insurers Have Already Won," Business Week pronounced back in August. If so, they're the sorest winners I've ever seen.
2) Not having health insurance would be against the law! If Congress were to enact legislation making it illegal not to read Slate every day, I might voice a few objections on policy grounds. From a financial perspective, though, I'd be tickled pink. Yet the insurers are actively resisting a bill that would do essentially the same for them. (I assure you, it isn't because they object philosophically.) Even if you accept AHIP's onetime contention that the Senate's bill didn't adequately penalize those who didn't buy insurance, the Obama proposal has toughened the penalty, raising it from 2 percent of income to 2.5 percent of income, which is what the House proposed. AHIP could probably get the penalty strengthened still further if it supported the bill rather than opposed it.