Health Insurers Fight a Public Plan, but Rarely Each Other

Studies show health insurance is one of the least competitive markets in the U.S., which may be why premiums are rising

By Catherine Arnst

Health insurers are on board with many congressional proposals for health-care reform. But they are vociferously opposed to the creation of a publicly financed insurer, arguing that they couldn't possibly compete against a low-cost public plan that has no need to earn profits. They may have a point. Many economists say insurers face very little competition now across large swaths of the U.S.

Various studies have found that health insurance is one of the most concentrated markets in the U.S., and that the lack of competition may be one factor behind sharply rising premiums. Each year, the American Medical Assn. surveys the competitive landscape for commercial health insurers; the latest report found that out of 314 metropolitan areas across the nation, 94% can be defined as highly concentrated, with two companies or even a single provider dominating the market. In 15 states, one insurer has half or more of the entire market, and in seven states, a single insurer has 75% or more.

This concentration has become a potent argument for supporters of a public plan, President Obama among them. Such a plan would theoretically lower administration costs. And with no need to generate profits for shareholders, it could offer lower premiums—thus applying precisely the kinds of pressures that are most needed. On July 21, in White House remarks urging action on his health-care initiative—something he now does on almost a daily basis—Obama again spoke of the need for a public plan. "Americans will be able to compare the price and quality of different plans, and pick the plan that they want. If you like your current plan, you will be able to keep it," he said. "And each bill provides for a public option that will keep insurance companies honest, ensuring the competition necessary to make coverage affordable."

Industry Ad Campaign Launched July 20

Insurers argue that such a plan would be a disaster for their industry. They point to an analysis by the Lewin Group, a subsidiary of UnitedHealthcare (UNH), that predicts that 103 million Americans would jump to the cheaper public option, out of the 160 million now insured commercially (the Congressional Budget Office estimates that only 9 million to 10 million would choose a public plan by 2019). Karen Ignagni, president of the industry lobbying group America's Health Insurance Plans, or AHIP, said in a letter to Congress that a public plan would "significantly increase costs for those who remain in private coverage."

Insurers believe they are already offering up plenty of other changes to their business practices to help further reform, and should be spared the burden of the public plan. AHIP has come out in favor of ending different premiums based on health status and eliminating coverage denials because of pre-existing conditions. It also supports the creation of a publicly run insurance exchange that would make it easy for consumers to compare policies from different companies, bringing price transparency to an industry that can be frustratingly opaque. "We think comprehensive reform is needed," says Alissa Fox, senior vice-president of Blue Cross Blue Shield.

AHIP even launched an ad campaign on July 20, but it is far different from the devastating "Harry and Louise" ads of the early 1990s that helped sink President Clinton's efforts at reform. This time around, the industry's ads are supportive of reform proposals, and they don't mention the public plan option. That could be because, as Charles Boorady, health-care analyst with Citi Investment Research (C), says: "The health insurers…have a difficult PR battle."