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Insurance Industry Says Reform Bill Will Send Costs Soaring

Posted by: Cathy Arnst on October 12

The main lobbying group for the U.S. health insurance industry issued a report over the weekend estimating that the Senate Finance Committee’s reform proposal would cause health care costs to increase even more than if no legislation at all is passed,. The report signals a major shift in strategy for the trade group, America’s Health Insurance Plans (AHIP), which has been a very public advocate for health care reform in the hopes that federal action would both slow health care inflation and give it access to a huge new market of the now-uninsured.

“The report makes clear that several major provisions in the current legislative proposal will cause health care costs to increase far faster and higher than they would under the current system,” Karen Ignagni, AHIP’s president, said in a memo sent to AHIP board members Sunday. “Between 2010 and 2019 the cumulative increases in the cost of a typical family policy under this reform proposal will be approximately $20,700 more than it would be under the current system.” AHIP plans to circulate the report to members of Congress ahead of the full finance committee vote on the proposed bill, scheduled for Tuesday.

AHIP made a deal with President Obama earlier this year that its members would sell policies to everyone at the same rates, regardless of health status or pre-existing conditions. In return, the industry wanted a strong individual mandate that would require everyone to buy insurance who could afford to, with subsidies for those who couldn't. The additional new customers, it figured, would create such a broad risk pool that insurers could afford to cover the already sick.

The individual mandate contained in the finance committee draft is far weaker than AHIP wanted, however. The Congressional Budget Office released a preliminary estimate that the proposed legislation would probably extend coverage to 29 million Americans who currently lack insurance, leaving 25 million people still uninsured. AHIP charges that the weak fines contained in the bill for people who don't purchase insurance means that too many healthy people will forgo insurance, opting in only when they become sick. Without lots of healthy people in an insurance plan to shoulder the risk , premiums will have to rise, AHIP says. The lobbying group is also unhappy about proposals to tax so-called "Cadillac plans," the most expensive policies offered by some companies to their employees, and the billions of dollars in fees levied on various segments of the health care industry --all of which, it says, will end up being passed on to consumers.

The PricewaterhouseCoopers report commissioned by AHIP came up with the following calculations:

The cost of the average family policy is approximately $12,300 today and will rise to: $15,500 in 2013 under current law and to $17,200 if these provisions are implemented. $18,400 in 2016 under current law and to $21,300 if these provisions are implemented. $21,900 in 2019 under current law and to $25,900 if these provisions are implemented.

AHIP plans to take out ads promoting the report's findings, but a lot of health care observers are already questioning the report's assumptions. Jonathan Cohn, who writes the New Republic blog The Treatment, critiques several Pricewaterhouse assumptions, including the impact of a tax on high priced insurance policies:

The idea of the excise tax is to end the tax subsidy for more expensive plans. The hope is that, once this subsidy is gone, employers and their employees will react by shopping around for cheaper plans--and that the resulting cost pressure will reduce health care spending overall, leading to lower prices down the line. Most economists seem to think this will be the case. So does the Congressional Budget Office, as best as I can tell. (They don't make pronouncements on how reform will affect private premiums, but they do believe it will lower health care spending overall.) PricewaterhouseCoopers acknowledges all of this. But they decide that, for the sake of illustration, they're going to pretend that the tax will have no effect except to raise prices.

Dr. Aaron E. Carroll, director of the Center for Health Policy and Professionalism Research at Indiana University, says on his blog, Rational Arguments:

I think this may possible backfire. The insurance companies seem to be saying that they will be completely unable to contain the costs of insurance.Ummm…isn’t that the argument everyone makes for the public option? Many believe that we need the public option to compete with private insurance so that they will be forced to find a way to lower costs. Am I missing something here?

Economist Ezra Klein, in his blog for the Washington Post, takes issue with assumptions contained in the Pricewaterhouse analysis:

A footnote -- how come the good stuff is always in the footnotes? -- on page E-2 of the report sort of gives away the game. It reads: "Impact assumes payment of tax on high- value plans, full cost-shifting of cuts to public programs, and full passthrough of new industry taxes." That's written to obscure, but what it means is that the report assumes no behavioral changes in response to new policies...At least, it would in the world of PWC's report. But it wouldn't do so in the real world. So too with these assumptions. Economists think that the tax on high-cost health-care plans will lead employers and consumers to demand cheaper plans that do more to control costs.

The Democrats also went after the report's methodology. Scott Mulhauser, a spokesman for Democrats on the Senate Finance Committee, said in a statement:

This report is untrue, disingenuous and bought and paid for by the same health insurance companies that have been gouging too many consumers for too long as they stand in the way of reform yet again...This report is pitching some seriously flawed analysis that nobody's buying as it excludes all the provisions that will actually lower the cost of coverage - tax credits, grandfathering for existing policies, increased enrollment in private coverage and administrative savings from a more efficient mechanism for purchasing coverage. It's a health insurance company hatchet job, plain and simple.

The full Pricewaterhouse report can be read here. For a behind the scenes look at the insurance industry’s lobbying efforts, read the BusinessWeek story from Aug 6, The Health Insurers Have Already Won.

Reader Comments

jacksmith

October 12, 2009 01:20 PM

CONGRATULATIONS! President Obama on your Nobel Prize. It's well deserved :-)

Why A Strong Public Option Is Essential - By jacksmith - Working Class

Robert Reich explains the pubic option: http://bit.ly/dDYSJ

Hollywood Supports The Public Option :-) http://bit.ly/3XLwPi

It's not just because more than two thirds of the American people want a single payer health care system. And if they can't have a single payer system 77% of all Americans want a strong government-run public option on day one (86% of Democrats, 75% of Independents, and 72% Republicans). Basically everyone.

It's not just because according to a new AARP POLL: 86 percent of seniors want universal healthcare security for All, including 93% of Democrats, 87% of Independents, and 78% of Republicans. With 79% of seniors supporting creating a new strong Government-run public option plan, available immediately. Including 89% of Democrats, 80% of Independents, and 61% of Republicans, STUNNING!!

It's not just because it will lower costs. Because a strong public option will dramatically lower cost for everyone. And dramatically improved the quality of care everyone receives in America and around the World. Rich, middle class, and poor alike.

It's not just because it will save trillions of dollars and prevent the needless deaths of millions more of YOU, caused by a rush to profit by the DISGRACEFUL, GREED-DRIVEN, PRIVATE, FOR-PROFIT MEDICAL INDUSTRIAL COMPLEX!

It's not just because every expert in every field, including economists and Nobel laureates, all agree that free-market based healthcare systems don't work. Never have and never will. The US has the only truly free-market based healthcare system in the World. And as you all know now, IT IS A DISASTER!

It's not just because providing or denying medically necessary care for profit motivations is wrong. Because it is WRONG! It's professionally, ethically, and morally REPUGNANT!, Animalistic, VILE and EVIL.

THE REASON THE PUBLIC OPTION IS ESSENTIAL:

The public option is ESSENTIAL because over 200 million of you are trapped in the forest of the wolves. Which is the forest of the DISGRACEFUL, GREED-DRIVEN, PRIVATE FOR-PROFIT MEDICAL INDUSTRIAL COMPLEX! With no way out except through needless inhumane suffering, and DEATH. While the wolves tear at your flesh, and rip you limb from lib. Then feast on your lifeless bodies like a dead carcasses for transplant parts.

At the most vulnerable times of your lives (when you were sick and hurting), millions of you have had to fight and loose cruel but heroic battles. Fighting against the big guns of the DISGRACEFUL, GREED-DRIVEN, PRIVATE FOR-PROFIT MEDICAL INDUSTRIAL COMPLEX! in the forest of the wolves. All because you have no place else to go. You have no other CHOICE!

But the PUBLIC OPTION will give you someplace safe to go. And it will give us someplace safe to take you. The public option will be your refugium (your refuge). Where the wolves cannot get at you when your down, hurting, and vulnerable. Where everyone who needs it can find rest, security, comfort and the care they need. Protected by the BIG GUNS of We The People Of The United States. THE MOST POWERFUL PEOPLE AND COUNTRY ON EARTH.

This is why it is so critical that we do not lead another 50 million vulnerable, uninsured Americans into the forest of the wolves, without the protections of a Strong Government-run MEDICARE like public option. We The People Of The United States MUST NOT LET THAT HAPPEN to any more of our fellow Americans. If healthcare reform does not contain a strong MEDICARE like public option on day one. YOU MUST! KILL IT. Or you will do far more harm than good. And millions more will die needlessly. Rich, middle class, and poor a like.

To those who would continue to obstruct good and true healthcare reform for the American people, and who seek to trap millions more vulnerable Americans in the forest of the wolves. We will continue to fight you. We are prepared to wage all out war against you, and will eagerly DESTROY! you. Time...is...UP! YOU HAVE BEEN WARNED! No Co-ops! No Triggers! NO INDIVIDUAL MANDATES! without a Strong MEDICARE like public option on day one.

Healthcare reform can be the GREATEST! Accomplishment of our time and century. A time when future generations may say of us, that we were all, AMERICAS GREATEST GENERATIONS.

BUT WE MUST ACT!

I therefore call on all my fellow Americans and the peoples of the World. To join us in this fight so that we may finish becoming the better America that we aspire to be for everyone.

SPREAD THE WORD!

I have been privileged to be witness as many of you fought, and struggled to take your first breath, and your last breath on this earth. Rich, middle class, and poor a like. Life is precious.

Whatever the cost. WE! MUST SUCCEED.

God Bless You My Fellow Human Beings

jacksmith - Working Class

ATTENTION!! Congress Has The Votes Needed To Pass A Public Option - TODAY http://bit.ly/TCq7O

Things You Can Do To Help NOW! http://www.everydaycitizen.com/2009/09/tired_of_watching_people_die_n.html

A majority of voters would rather have a Democrats only bill with a Public Option. Than a bipartisan bill without a Public Option.

A state based insurance plan is NOT!! a Public Option. Nor is it a Strong, National, Medicare like Public Option.

No Triggers! http://www.huffingtonpost.com/jason-rosenbaum/a-trigger-for-the-public_b_277910.html

Triggers http://www.huffingtonpost.com/david-sirota/weve-seen-these-triggers_b_283583.html

Krugman on heathcare (http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare/)

Senator Bernie Sanders on healthcare (http://www.youtube.com/watch?v=RSM8t_cLZgk&feature=player_embedded)

John Garamendi on the Public Option and the Grassroots: http://bit.ly/TJMty

Howard Dean on the Public Option http://www.youtube.com/watch?v=8SKfW2dUnow&feature=player_embedded

We're Number 37! in quality of health care http://www.youtube.com/watch?v=yVgOl3cETb4&feature=player_embedded

Twitter search (#welovethenhs #NHS #hc09 #hcr #healthcar #obama #p2 #topprog #) Check it out.

Mant

October 12, 2009 01:33 PM

Is there anyone out there who still thinks that we don't need a public option?

123xyz

October 12, 2009 01:53 PM

What is so surprising? Those in the insurance industry are among those loving the status quo complete with its steady stream of revenues on the backs of everyday Americans. Will their cost growth estimates pale when overlaid with the long-term cost to the country?

ian

October 12, 2009 02:08 PM

this is completely predictable ...

if you water down the requirement to buy health care you end up right where you started

it's a perfect example of how washington doesn't have the guts to really face the problem head on

lobbyists are killing the republic

sicily

October 12, 2009 08:23 PM

What Jacksmith said.

Single payer, "Medicare for All" is the ONLY option.

Get rid of insurance companies . . . get rid of the problem.

Insurance companies and health care is an oxymoron.

Greg

October 13, 2009 06:42 AM

Health insurance is no different from car insurance or Blackjack insurance. You pay money to get peace of mind. No one is forcing you to obtain insurance. Insurance is not a fundamental human right, it is just a convenient for-profit service. But Democrats see it as a cash cow. Democrats broke Obama's deal with insurance companies by allowing the sickest individuals with pre-existing conditions to obtain insurance policies, while allowing healthy people to choose not to buy any insurance. This unfairly shifts the risk and cost to the insurance companies.

walter quillico

October 13, 2009 02:14 PM

Not sure how people get the numbers they use but I do not think that a public health care single payer plan ever had a majority support in this country. I think everyone would like cheaper policies and more coverage. If they thought they were getting that then maybe they would support a public health plan single payer plan. Typical though for our government - lets not deal with the health care issues. Lets create some huge government measure that will not provide better care, will not be cost effective and will be run by the same people who couldn't run social security. I guess if they can get us to die more quickly by destroying our medical services then they can eventually fix the social security problem as we will not live long enough to collect from it.

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