The Wonk Room

Another Case For The Public Option? Insurer Releases Third Report Threatening To Raise Premiums

Wellpoint, the nation’s largest insurer, has issued 14 reports on how health care reform would affect the premiums in 14 states. The insurer claims that the low individual mandate penalties in the Senate Finance bill and narrow age rating bands, will lead to higher premiums for Americans currently purchasing coverage in the individual and small group markets. “[W]ithout a strong individual mandate, the market reforms will have a direct impact on premiums and we believe will exceed any aggregate savings that can potentially be achieved through other elements of proposed legislation,” the report concludes:

Currently, a young and healthy individual may purchase comprehensive health insurance coverage for $107 per month in the individual market, and it is very reasonable that in the absence of a strong individual mandate, other elements of reform cannot overcome the impact of insurance market reforms and will multiply this premium for those purchasing coverage post-reform. We believe the pages that follow reflect a reasonable, honest assessment of the impacts those purchasing coverage would see post-reform. As shown, we do expect some individuals that currently exhibit higher risks to experience a drop in premiums as the result of reform. However, most purchasers will face higher premium costs post-reform, and as shown, purchasers of average age and average health are expected to face higher premiums post-reform.

If policy makers don’t require enough younger and healthier applicants to join the risk pool (and offset the costs of covering sicker applicants), premiums will increase for everyone, Wellpoint says. And it’s a valid point: modified community rating and guarantee issue can only lower costs if the size of the risk pool is expanded and the healthy balance out the costs of the sick. The merged senate bill should certainly adopt stronger mandate measures. But comparing today’s individual market policy with a post-reform product from the exchange (or even in the remaining individual market) is apples to oranges. If properly designed, the post-reform insurance plan will not be the porous, inadequate, high deductible policy currently available in the non-group market. Americans would be purchasing regulated policies from insurers that can’t rescind coverage or deny certain basic benefits. In other words, if you’re paying more, you’re getting a better plan.

The reality is, some reform provisions would tend to make premiums higher than current-law premiums; other provisions would “tend to make them lower.” Americans from different income brackets will pay different amounts for health care, but on the whole an analysis of Congressional Budget Office data suggests that reform will offer health insurance policies that are more affordable than what is currently available in the individual market.

If premiums do increase, however, insurers bear a fair share of the blame. As Families USA points out, insurers are “like a poker player who complains about his hand when, in fact, he is the dealer.” For all their concern about health care costs, Wellpoint has a poor track record of controlling prices or providing adequate coverage. According to a 2008 study by the American Medical Association, “WellPoint controls the largest market share in 9 of 42 states studied (CA, GA, IN, KY, ME, MO, NY, OH, and VA), dominating 71 percent of the market in Maine, 58 percent of the market in Indiana, and over half the market in Georgia, Kentucky, and Virginia.” It is the poster child for why progressives want to force large for-profit conglomerates to compete with a public option that places people before profits.

Wellpoint is heavily invested in the individual health insurance market and “has been among the most aggressive in pursuing healthy customers who are less likely to use benefits to pay for medical care.” The company has a “long history of putting its bottom line ahead of the welfare of its policyholders and their health care providers”:

- WellPoint Inc. has been barred from adding customers to Medicare plans after it denied prescription drugs to the elderly, endangering their lives.

- In 2006, WellPoint’s profits increased 34% as premiums and fees surged.

- WellPoint Inc., the nation’s largest health insurer that covers about 1 in 10 people in the U.S., fared the worst among its peers in a survey gauging how quickly HMOs process and pay claims to doctors.

- In March 2007, the state’s Department of Managed Health Care fined Blue Cross of California and its parent company, WellPoint, $1 million after an investigation revealed that the insurer routinely canceled individual health policies of pregnant women and chronically ill patients.

- California regulators uncovered more than 1,200 violations of the law by the company in regard to unfair rescission and claims processing practices.

- In December 2007, Insurance Commissioner Steve Poizner announced his office was imposing a $12.6 million fine against Blue Shield, saying the company had “committed serious violations that completely undermine the public trust in our healthcare delivery system.

Consider the source, but also understand the criticism. If we want to ensure affordable and comprehensive coverage we have to improve affordability standards (by injecting some real competition into the marketplace) and hold insurers accountable.

Obama’s Radio Address: A Missed Opportunity To Press For A Public Option

In Saturday’s radio address, President Obama condemned the insurance industry for “filling the airwaves with deceptive and dishonest ads” and “flooding Capitol Hill with lobbyists and campaign contributions” “designed to mislead the American people.” Obama called out the industry for “making this last-ditch effort to stop reform” and criticized cable news and so-called experts for buying into the latest false industry reports. “It’s smoke and mirrors. It’s bogus. And it’s all too familiar,” he said.

But that’s where the fiery speech ended. Obama’s response to the insurance industry reports provided him the perfect opportunity to press for a public option, only he let the moment slip. The address was long on rhetoric but short on policies that could keep the industry in check. Obama sanctioned Democratic efforts to remove the industry’s anti-trust exemption, but fell short of endorsing a robust public option that could lower health care costs, lower the costs of the bill, and keep insurance companies accountable. The following day, White House Officials took to the airwaves to explain that the administration would not demand a public plan. In fact, despite the Democrats’ super majority in Congress, and the overwhelming support of the American people, the administration wouldn’t be demanding much of anything:

- Valarie Jarrett: He’s not demanding that it’s in there. He thinks it’s the best possible choice. But I think, David, let’s not underestimate how much progress we’ve made. [MTP, 10/18/2009]

- David Axelrod: I think the final bill will achieve those goals, and a public option would help in that regard….There will be compromise. There will be legislation, and it will achieve our goals.” [This Week, 10/18/2009]

- Rahm Emanuel: And so the president believes in it as a source of competition. He also believes that it’s not the defining piece of health care. It’s whether we achieve both cost control, coverage, as well as the choice that…The president of the United States will obviously weigh in when it’s important to weigh in on that. [State of The Union, 10/18/2009]

The address was a missed opportunity. Obama could have responded to the industry’s self-serving report by arguing that reform must inject significant competition into health insurance markets. He could have used their new-found tone to argue that reform must hold the industry accountable. The American people, in other words, should not be compelled to buy private coverage from an industry that has just admitted that it would increase premiums by some 111% if reform passes.

But rest assured that Obama still believes the public option is “the best possible choice” to restore competition and improve affordability. He just refuses to fight for it. Why? The public option is not a liberal ideological baton, it’s a sensible compromise that builds on free market principles. According to the Congressional Budget Office, the option would attract some 10-15 million new applicants, hardly a threat to private insurers who have spent years building brand loyalty and today boast hundreds of millions of applicants. It would add a sliver of competition into the market — and, judging by the industry’s reaction, that’s threatening enough. It would save the government some $150 billion dollars, lower the cost of the bill, lower premiums by some 10%, and help bring about the kind of delivery system reforms that could lower the rate of growth in health care spending.

What’s more, 77% of the American people and the majority of Democrats in the House and Senate support it. So why not pressure reluctant Democrats to support the policy? Why not push Reid on the option? What does the White House have to lose?

The President may not have the votes for a public plan today, but he’ll never get them if he doesn’t publicly pressure the Congress to stand up to the health insurance industry and help make insurance more affordable for millions of Americans.

Republicans Embrace Insurance Industry Funded Study On Premiums Increases

Senior Republicans have embraced the now-discredited insurance industry funded study on premium increases in the Senate Finance Committee’s health bill. While careful to not directly connect the study to the insurance industry, Republicans cite the study’s claim that premiums will increase by $4,000 and disingenuously argue that the Congressional Budget Office agrees with the insurance industry’s conclusions:

- Sen. Jon Kyl (R-AZ): CBO, and Milliman and PriceWaterhouse all agree that insurance premiums for families in America will go up.

- Sen. John Cornyn (R-TX): I would like to go back to some of the discussion of the PriceWaterhouse Coopers study that was released and which has been criticized because it was paid for by the insurance industry…it would be a cruel outcome indeed if in fact, unintentionaly we actually increased their health insurance costs.

- Sen. Jim Bunning (R-KY): And a recent study suggests that American families will pay more than $4,000 in 2019 because of this bill.

Watch it:

As Congressional Budget Office director Douglas Elmendorf pointed out, the budget office did not conclude that premiums would increase under reform. “There are a variety of forces working on affecting private insurance premiums and the amounts that people would pay for health insurance and some of the changes in the proposal would tend to push down those premiums and some would tend to push up those premiums. And because there are so many conflicting forces, we have not been able to assess the impact on premiums,” Elmendorf said.

The insurance industry was correct to argue that a weak individual mandate would increase premiums — the final Senate bill needs to improve on the Finance bill’s affordability measures. But the industry’s very selective analysis undermines its conclusions and exposes the study as an industry attempt to protect the bottom line. An actual analysis of Congressional Budget Office data has concluded that premiums in the exchange would be lower than they are in the none group market today.

Is PricewaterhouseCoopers Backpedaling From Its Own Insurance Industry Report?

Over the weekend, America’s Health Insurance Plans (AHIP)– the lobbying arm of the health insurance industry — issued an inflammatory report warning Congress that the Baucus health care bill would increase health care costs. But critics have argued that the report is a skewed analysis that doesn’t consider the totality of reform.

As the Senate Finance Committee points out, the industry backed analysis “has not taken many of the reform provisions into consideration in reaching its numbers.” “These other reform provisions would have the opposite effect and lead to lower premiums – but those provisions were ignored,” the Committee wrote in a memo criticizing the report.

The text of the actual report legitimizes this criticism. From page 8:

The reform packages under consideration have other provisions that we have not included in this analysis. We have not estimated the impact of the new subsidies on the net insurance cost to households. Also, if other provisions in health care reform are successful in lowering costs over the long term, those improvements would offset some of the impacts we have estimated.

Last night, PricewaterhouseCoopers — the firm hired to perform the analysis — issued a statement reiterating the report’s limitations. PricewaterhouseCoopers reprinted the report’s page 8 language, leading POLITICO’s Chris Frates to interpret the statement as “Hey, we weren’t paid to evaluate the effects of the entire bill, but rather a small slice of it.”

Indeed, a more comprehensive analysis performed by MIT economist Jonathan Gruber modeled on available data from the Congressional Budget Office concludes that if one considers “delivery system reforms, new options, premium assistance, and other proposals to improve quality,” the Senate Finance bill does lower costs:

- Sizeable premium savings for young. An individual aged 25 at $19,000 in income (175% of poverty) would benefit from tax credits and would save, on average, $685. A higher income young person could always buy a “bronze” plan without tax credits for a savings of $230.

- Even larger premium savings for older individuals. A person age 60 with income at $19,000 (175% of poverty) would save, on average, $7890. A person at age 60 with income at $40,600 (375% of poverty) would continue to benefit from tax credits and would save, on average, $4100.

- Also large premium savings for a family. A family with income at $38,000 (175% of poverty) would save, on average, $8550. That same family with higher income could buy a “bronze” plan without tax credits at a savings of $2430 over current non-group prices.

As Gruber explained during an appearance on MSNBC, “I think the point that the premiums will go up, if penalties aren’t higher is exactly right. But that’s not what this report says”:

If the report had came out and said, ‘look we need stronger penalties, or premiums will go up,’ that’s a very valid point to make. But what the report says, is that it went too far. It said with the current structure, premiums will be much higher than they are today. And that’s just wrong. I mean, the non-partisan Congressional Budget Office has came out and said that for this bill, premiums in the exchange will be lower than they are in the none group market today. So they just drew the wrong comparison.

Read Gruber’s full report here.

Insurance Industry Issues Misleading Report, Promises To Increase Premiums By 111%

After months of publicly supporting health care reform, insurers are warning Congress that under the Baucus health care bill, “the cumulative increases in the cost of a typical family policy…will be approximately $20,700 more than it would be under the current system.”

The industry has issued a new report arguing that the weak personal responsibility requirement, taxes on health care providers, spending reductions in Medicare and taxes on high-value health plans will increase “the cost of coverage for both single and family policies in the individual, small group, large group, and self-funded insurance markets.”

Ezra Klein and Jonathan Cohn dispute the report’s methodology here and here, but it’s worth pointing out that industry’s argument that reform will increase insurance premiums for all Americans is simply untrue. It could also backfire. As Rep. Anthony Weinder (D-NY) explained this morning on MSNBC, “the health insurance lobby today fired the most important salvo in weeks for the public option“:

If you have the health care industry complaining that we’re going to raise costs because of these changes, it is them putting us on notice that we haven’t put enough cost containment in the bill. You know, the health care industry themselves is putting out a whole report saying that. That should be a tell to the Baucus team that you know what, maybe it’s time for them to go back and revisit the public option. In a strange way, and look, obviously they didn’t mean this, the health insurance lobby today fired the most important salvo in weeks for the public option, because they have said, as clear as day, left to their own devices, according to their own number crunchers, they’re going to raise rates 111%.

The reality is, some reform provisions would tend to make premiums higher than current-law premiums; other provisions would “tend to make them lower.” Americans from different income brackets will pay different amounts for health care, but on the whole, the Baucus bill, which provides affordability subsidies for Americans between 133-400% federal poverty line, will offer health insurance policies that are far more affordable than what the insurance industry report predicts.

Here is a comparison between the non partisan Congressional Budget Office’s analysis of the cost of premiums in the Exchange and the industry’s report. As it points out, under reform, Americans — even those that don’t qualify for a subsidy — will have far more affordable insurance options than industry’s “average” suggests:

Insurer Analysis: Premiums In 2016	CBO Analysis: Premiums In 2016 (Exchange)
$21,300	$14,400

Still, the Baucus bill must do more to control health care spending and lower premiums in the private market. After all, Congress shouldn’t force Americans to purchase unaffordable coverage. But for all their concern about ‘average health care costs’, insurers have a poor track record of controlling prices. As Families USA points out, insurers are “like a poker player who complains about his hand when, in fact, he is the dealer.”

Indeed, despite complaining about high health care premiums, insurers have lobbied against system-wide cost containment. They’ve spent millions of dollars opposing a public option that could reduce health case spending by some $150 billion and are even suing the state of Maine to increase premiums.

The insurance lobby is “conveniently forgetting that they imposed significant premiums increases during the past decade that are making health coverage unaffordable for families and businesses.” Now, since they’ve published a report promising to increase health insurance premiums even higher, the Senate must insert a public option mechanism (along with other cost-containment provisions) to competitively lower rates and keep the private health insurers honest.