Health-Reform Premium Claims Generate Heat, but Little Clarity

Posted by: Theo Francis on October 15

Along comes another study arguing that the Senate Finance Committee’s health-care bill will drive up costs, in this case either by pushing family insurance premiums up hundreds of dollars, or raising the federal tax (and fee) burden on health insurers.

And, as might be expected, it’s another partial picture of the legislation — a glimpse into one aspect of one huge and complex proposal among the five legislative bills now circulating in House and Senate, but entirely ignoring other vast swaths of it.

“Ultimately, one needs to put all the moving parts together,” says Stuart Altman, a professor of national health policy at Brandeis University. “Up to this point, the advocates for reform ignore the premium increases; now you hear from the advocates for the [insurers] and they ignore the other stuff.”

The latest partial picture comes courtesy of Ken Kies, a longtime conservative tax guru and lobbyist for the Blue Cross Blue Shield.

Kies looked at a $6.7 billion annual fee on health insurers proposed by the Senate Finance Committee and evaluated it in a vacuum: Treated as a tax, what would it do to insurers' effective tax rates? If passed along in its entirety to a subset of customers, how much would it raise their premiums?

The fee would a flat dollar amount, and spread among insurers based on their share of a standard measure of total premiums collected by all companies. In other words, the more insurance a company writes, the more of that $6.7 billion it would pay.

His conclusion, after calling 33 unidentified health insurers and folding in some publicly available data: If insurers had to eat this cost themselves in 2008 -- and couldn't pass it on to customers -- it would have driven up the firms' tax rate to 50% or more. For some firms, their effective tax rate would rise above 100%, but most of those with profits would have seen their rates rise to between 50% and 100%. The range of fees for individual companies in his sample was $1 million to $759.6 million (he said he didn't calculate a median).

Of course, companies generally pass on price increases if they can -- and with many critics complaining that insurers face little competition in many markets, that's a real possibility. So Kies estimates that this fee alone could push premiums up $489.25 for a family of four.

That's an awfully precise figure given how many assumptions went into the calculation, of course. Among them: Insurers would pass along 100% of the cost, and only to those customers it insures directly -- self-insured employers with plans managed but not insured by the firms wouldn't see a price increase; moreover, Kies argues that because insurers would be taxed on their profits but couldn't deduct the fee, the insurers would actually have to pass along more than $10 billion in costs to collect that $6.7 billion fee.

And then there are the many factors Kies is omitting -- for example, every other aspect of the Senate Finance Committee bill. Kies acknowledges as much, perhaps mindful of the drubbing taken by the main health-insurer trade group when it released a much-criticized analysis earlier this month, which emphasized cost and largely ignored any benefit from the bill.

"This is one factor that will affect premium levels," Kies told reporters in a phone briefing. "We’re not saying it’s the only factor."

Indeed, among those left out: the likely increase in customers, revenue and profit insurers would enjoy should Americans be required to buy insurance; the federal tax credits that would subsidize the payments for many people; and the savings some predict from a variety of measures to improve health-care efficiency. (Kies counters that the fee kicks in next year, while the insurance mandate and many other provisions of the bill don't kick in for several years.)

After being questioned on the topic, Kies emailed reporters with a revised estimate, turning on CBO estimates that most of the 29 million Americans who would gain health insurance under the bill would be on Medicaid or related programs; 14 million would be added to private insurers' rolls. Those additional customers would generate $793 million in new income for the Blues, he told BusinessWeek, leaving the after-tax reduction in their profit at $2.16 billion. Profits remaining: $2.5 billion.

Senate Finance Committee staff argue that insurers wouldn't pass on the fee, in part because insurers could expect increased profits from the new business, giving them an incentive to chase market share by swallowing the cost. Moreover, Americans already pay hidden subsidies on emergency and charity care for the uninsured -- as more of those people become paying customers, that hidden expense will fade, they argue.

"How many one-sided, fatally-flawed 'reports' like this are lobbying firms and insurance companies going to create before their credibility is entirely shot?" spokesman Scott Mulhauser said in a statement.

To Altman, the Brandeis health-policy professor, much of this is beside the point. He thinks premiums would likely to rise overall -- the country would be covering more people -- but that no one has come close to doing a rigorous analysis to figure out by how much, or if that's really the case. The insurers have largely ignored the benefits they would see from the reform proposals, and the Congressional Budget Office looked only at the government's cost, not private-sector costs. (For one thing, the CBO's job is to look at government spending; for another, the uncertainties remain voluminous.)

"Somebody needs to do that study," Altman says.

For now, neither side has much of an interest in an objective analysis, and no one else has the responsibility to get it done. Says Altman: "I would like the CBO, or somebody, to have a mandate to look at the total impact."