The Wonk Room

Health Insurers Spend Millions On Ad Campaign In Order To Argue That They’re Frugal

Yesterday, in her introduction of Kathleen Sebelius, AHIP President and CEO Karen Ignagni said that insurers were “very concerned about insurance premiums and the trajectory” of health care spending. “We understand that begins also with us. So we are fully committed to cost containment. No finger pointing to other sectors,” Ignagni promised.

But finger pointing she is. A day earlier, AHIP released a new ad blaming doctors and hospitals for higher health care costs and rising premiums. The ad — part of AHIP’s charm campaign to deflect attention from the industry’s rising profits and egregious business practices — visualizes the drivers of medical costs in a spending pie and argues that insurers are responsible for the Weight Watchers portion.

“Some in Washington say it’s all health insurance, but health insurance is one of the smallest slices [of the health care cost pie],” the AHIP-sponsored ad begins. “Health insurance companies’ costs are only 4% of health care spending. Doctors, hospitals, medicines, and tests are the biggest slices and a government report says their rising prices are a primary driver of primary health care costs.” Watch the ad here.

The ad doesn’t explain how much of that 4% is spent on paying health care claims versus multi-million dollar public relations campaigns or why the industry is spending millions to convince the public that they’re committed to frugal and efficient business practices. But it does make a valid point. Despite their promise not to finger point “to other sectors,” insurers are right to argue that large provider groups use their market leverage to increase reimbursement rates and increase health care costs. But so do insurers.

In fact, yesterday, Mark Miller — executive director of the Medicare Payment Advisory Commission (MedPAC) — took insurers to task for overpaying hospitals and doctors at the AHIP conference:

MILLER: There’s kind of this food fight going on where the private sector since Medicare doesn’t pay enough and it’s a cost-shifting argument. And I would say that the commission has different feelings about that. We have evidence that suggests part of the problem, not always the problem is that there hasn’t been enough restraint on the private side. payment rates have been escalating and costs follow payment rates and I’d be happy to discuss that when we get to questions.

Watch it:

Miller is concerned that insurers are not using their leverage to negotiate with providers for lower prices. Linda Blumberg of the Urban Institute explains why:

- Insurers believe, probably correctly, that they cannot attract enrollees without including flagship hospitals. As a consequence, large and expensive teaching hospitals, have little incentive to negotiate with insurers and lower prices.

- Second, small insurers do not aggressively compete over price. Rather, rising premiums and increased profitability of nondominant firms provide indirect evidence of shadow pricing by smaller insurers; that is, smaller insurers do not seem to compete on premiums to gain market share but rather seem to follow the pricing of the dominant insurer. Competition in insurance markets is often about getting the lowest risk enrollees as opposed to competing on price and the efficient delivery of care.

- Third, the market is affected by the lack of clear information necessary to allow individuals to effectively shop for plans based on benefits, price, and quality. Without active competition, the dominant insurers have no need to bargain aggressively with providers.

- Finally, the consolidation of hospital systems that has occurred in recent years has also severely limited insurers’ ability to negotiate with hospitals for lower rates.

In other words, there is plenty of blame to go around — dominant hospitals and insurers use their leverage to secure higher rates. But as medical costs continue to outpace inflation, insurers have been able to use their market power to pass health costs to policy purchasers and increase their profitability at the same time. So while they’re trying to blame providers for the premium hikes, it’s fairly clear that — at least in some markets — they’re the ones who are overpaying them!

It’s also worth pointing out that a nationally televised ad campaign blaming providers for higher premiums only tarnishes the provider/insurer relationship and creates a hostile environment for negotiating rates. Insurers are frantically trying to point the fingers at providers to avoid a conversation about their failed efforts to control costs and increasing profits. It’s an argument Miller was unwilling to accept.