By releasing a transparently hyperbolic and self-serving study on the effects of health reform, the insurance industry appears to have blundered in a big way. They discredited themselves in the eyes of the media elite, alienated potentially sympathetic members of Congress, and rallied Democrats around a common foe.
So what are they doing now? They seem to be trying the same stunt again, with a brand new study. It's not as deceptive as the last one. But it's not going to win any points for intellectual honesty, either.
This time the study's sponsor is the Blue Cross Blue Shield Association (BCBSA), rather than America's Health Insurance Programs. The hired gun accounting firm is Oliver Wyman, instead of PriceWaterhouseCoopers. But the message is the same as before: Pass reform, as currently envisioned, and insurance premiums will go way up.
The study, which BCBSA distributed to members of Congress today, raises three concerns:
1. In the absence of a strong individual mandate, young and healthy people will opt out and/or try to game the system, driving up premiums for everybody else.
2. Restricting the ability of insurers to vary premiums by age will mean dramatically higher insurance prices for the young.
3. Raising the level of benefits all policies must provide will make policies overall more expensive.
What's the end result? According to the report, these flaws mean premiums will jump by more than 50 percent. (A lot more, actually, depending on how you do the math.) Yowza!
But wait...how did Oliver Wyman arrive at that figure?
The big problem with the PriceWaterhouseCoopers study, you may recall, was that it treated certain elements of reform in isolation, leaving out key parts that would have changed the outcome. Unbelievably--or, perhaps, all too believably--Oliver Wyman does the exact same thing.
As several experts pointed out to me today--the study has been circulating privately for a while now--you can see decision this plainly on page two of the report, in this key passage describing the impact of a weak individual mandate:
This would translate into premium increases of approximately $1,500 for single coverage for a year and $3,300 for family coverage in today’s dollars for people purchasing new policies. Subsidies will entirely or partially offset these premium increases for some individuals. Eight million current individual market members and 25 million uninsured earn between 100 and 400 percent of the federal poverty level and will have access to subsidies through the exchange. [Emphasis mine]
So reform will raise premiums, except that people making less than four times the poverty line will get subsidies offsetting the increases partially or entirely. Wait, doesn't that mean the average increase will be less than 50 percent--like, a lot less?
The report also gives no credit to any of the reforms designed to reduce health care spending, from delivery reform to the new excise tax on high-end insurance policies. You can see this quite clearly in the charts at the end of the report. At the bottom, each one has a box that says "This does not include the insurer tax." Admittedly, most of these savings will take time to materialize and the study, as best as I can tell, is primarily concerned with the immediate future. Then again, the study doesn't appear to give any credit whatsoever to the economies of scale and management that exchanges are expected to bring.
That's not to say BCBSA's are baseless. The argument about a strong mandate, in particular, is one with which many experts (and this writer) agree. Absent a sufficiently strong requirement to buy insurance, premiums could certainly go up faster than they would otherwise, although 50 percent seems awfully high. In addition, Oliver Wyman says the study doesn't take account of medical inflation, which, presumably, would actually cut in the other direction--i.e., it would make the figures seem worse.
And, to the credit of Oliver Wyman, the underlying calculations look more sophisticated than what PriceWaterhouseCoopers did for AHIP. This is the result of actuarial modeling, based on a large data set provided by Blue Cross plans from across the country. That doesn't make it perfect; even the best models don't really predict the future. But Oliver Wyman's basic method is sound. Or so the people who follow such things tell me. If BCBSA had avoided hyperbole and made more honest assumptions, they could have produced a study that was genuinely useful, albeit one that possibly made the case for more aggressive reforms rather than less.
But you have to wonder whether BCBSA really wants to be useful. Over the last few months, administration and Capitol Hill sources have repeatedly described the Blue Cross plans as among the most outwardly hostile to reform, apparently because they have the most to lose. The most radical changes in health care reform will come in the highly dysfunctional markets for people buying coverage on their own and for small businesses--markets that state-based Blue Cross plans happen to dominate.
One senior Senate staffer described the group's behavior to me in an e-mail:
If anyone is “Dr. No” in this debate it’s BCBSA and Wellpoint [which owns several of the Blue Cross plans]. They don’t come to the table with solutions, they come to the table with reasons (and numbers) on why everyone else’s ideas don’t work. They have the most to lose in reform since they are the largest carriers in the individual and small group market. ... they don’t want to change their business model.
By the way, I put calls and e-mails into BCBSA earlier today. When I hear back, I'll update this item.
Update: And here is the response from BCBSA.
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COMMENTS (7)
What this latest report and the earlier PWC report reveal is the difficulty of achieving "reform" as long as different groups are subject to, or participants in, different health care programs, with widely different costs (and reimbursement rates for providers) and coverages. Even with the "reform" that passed the Finance Committee, children will be under one set of rules, young adults another, the nearly old left the most vulnerable, and the old holding onto the gold standard. How can these groups, and others, ever come together if the outcome of "reform" varies so widely. I'm no fan of Megan McCardle, but her prediction that "reform" will pass and be perceived by a majority as a failure ... view full comment
What this latest report and the earlier PWC report reveal is the difficulty of achieving "reform" as long as different groups are subject to, or participants in, different health care programs, with widely different costs (and reimbursement rates for providers) and coverages. Even with the "reform" that passed the Finance Committee, children will be under one set of rules, young adults another, the nearly old left the most vulnerable, and the old holding onto the gold standard. How can these groups, and others, ever come together if the outcome of "reform" varies so widely. I'm no fan of Megan McCardle, but her prediction that "reform" will pass and be perceived by a majority as a failure may well be right, although not for the reasons she suggests but rather because of the different treatment of different groups that is inherent in a multi-program system.
No one can be sure there will be a substantial reduction in health care spending, or that the "exchanges" will result in substantially more competitive pricing, under the current Finance Committee plan. And even if the higher premiums promised by the insurance industry are offset to some degree by subsidies, the subsidies neverthless must be funded by someone, namely, the taxpayers. So the insurance industry may have a point in contending the the cost of health insurance is likely to rise under the Finance Committee plan. Which, as others have pointed out, is a good argument for some kind of lever that will compel the insurance companies to reduce premiums, even if it means reducing profi ... view full comment
No one can be sure there will be a substantial reduction in health care spending, or that the "exchanges" will result in substantially more competitive pricing, under the current Finance Committee plan. And even if the higher premiums promised by the insurance industry are offset to some degree by subsidies, the subsidies neverthless must be funded by someone, namely, the taxpayers. So the insurance industry may have a point in contending the the cost of health insurance is likely to rise under the Finance Committee plan. Which, as others have pointed out, is a good argument for some kind of lever that will compel the insurance companies to reduce premiums, even if it means reducing profits.
Dhurtado-what lever? I grow weary of the progressives "promising" things: we're bending the health cost curve, we're deficit neutral, you won't lose your insurance (ask the 10 million seniors who will be losing MedAd policies). You think government has a nimble hand and such efforts won't have negative consequences. This is the arrogance of the elite that most Americans find disgusting.
Look at the real world: there are like 7 states that have guaranteed issue/community rating laws. In the individual market, their premiums, for single and family policies, are twice the national average. Mandates cost money.
I'm sick, really, of the progressive attack on insurance companies? ... view full comment
Dhurtado-what lever? I grow weary of the progressives "promising" things: we're bending the health cost curve, we're deficit neutral, you won't lose your insurance (ask the 10 million seniors who will be losing MedAd policies). You think government has a nimble hand and such efforts won't have negative consequences. This is the arrogance of the elite that most Americans find disgusting.
Look at the real world: there are like 7 states that have guaranteed issue/community rating laws. In the individual market, their premiums, for single and family policies, are twice the national average. Mandates cost money.
I'm sick, really, of the progressive attack on insurance companies? They pay 87% of their premiums to doctors and hospitals and 2% of the premiums to states in the form of premium taxes (to subsidize others). Thus, their admin loand is 8% and their profit load is 3%-that's it-3%, something like the 90th least profitable industry in the US. It's not your right, or the government right, to tinker with their profits because you don't like them.
Hey, progressives, why not start your own insurance company? Take a risk. Make something happen. You can run it just like the reforms you want: take one, take all, charge premiums based upon community ratings, go for it.
So, your promises of the summer, again, were false. In fact, Obama knew they were when he made them-so-accusing him of being a liar is like, true.
I have been in the health insurance industry for 20+ yrs and agree that the 3 factors cited by BCBSA will without a doubt raise premiums. The available subsidies will reduce the amount of money people will have to pay of course but the premium levels will still increase resulting in an overall rise in subsidy levels. Competition through the exchanges will likely lower premium increases also but without strict mandates to purchase coverage risk will not be spread resulting in higher priced products for those seeking insurance. These higher prices of course will be a reason for fewer healthy people to obtain coverage further making the risk pool sicker which will make premiums go even highe ... view full comment
I have been in the health insurance industry for 20+ yrs and agree that the 3 factors cited by BCBSA will without a doubt raise premiums. The available subsidies will reduce the amount of money people will have to pay of course but the premium levels will still increase resulting in an overall rise in subsidy levels. Competition through the exchanges will likely lower premium increases also but without strict mandates to purchase coverage risk will not be spread resulting in higher priced products for those seeking insurance. These higher prices of course will be a reason for fewer healthy people to obtain coverage further making the risk pool sicker which will make premiums go even higher, i.e., the "death spiral" often cited by industry experts.
Lobo,
Perhaps I was too cryptic. By "lever" I mean competition -- constituted by some combination of removing antitrust exemptions (e.g., permitting interstate policy sales) and/or a public alternative. I assume you would agree that it is a worthwhile goal to make health insurance available to more people by reducing its price. Generally, price reductions occur as a result of reduced demand and/or increased competition. The Finance Committee plan (by mandating the purchase of insurance) will increase demand. That will tend to push premiums up. Forcing insurance companies to sell policies to high risk consumers, right or wrong, also will tend to push premiums up. "Economies of scale" (e ... view full comment
Lobo,
Perhaps I was too cryptic. By "lever" I mean competition -- constituted by some combination of removing antitrust exemptions (e.g., permitting interstate policy sales) and/or a public alternative. I assume you would agree that it is a worthwhile goal to make health insurance available to more people by reducing its price. Generally, price reductions occur as a result of reduced demand and/or increased competition. The Finance Committee plan (by mandating the purchase of insurance) will increase demand. That will tend to push premiums up. Forcing insurance companies to sell policies to high risk consumers, right or wrong, also will tend to push premiums up. "Economies of scale" (exchanges) may mitigate that increase in premiums somewhat, but I am far from sanguine that it will prevent an increase in premiums. So, as I see it, the only way to reduce premiums is to introduce more competition.
Now, if the insurance company's profit margin is so thin that increased competition will cause insurance companies to go out of business, then the insurance industry is in trouble and should itself be seeking some kind of reform. Absent any reform, insurance premiums will continue to rise, even if not as much as they might under the Baucus plan. The cost of medical services will also continue to rise. As more and more people get priced out of purchasing insurance coverage, insurance company revenues (and profits) will drop. In other words, the insurance industry may fall under its own weight absent some form of cost containment.
I didn't allege that insurers will go out of business-they don't need some kind of reform. Point was, their profit margin is thin-so-their premiums can't go much lower. You were the one who wanted a lever to possibly be paid out of those profits.
I agree wholeheartedly-if health care costs don't moderate-many Americans won't be able to afford them-even if we had a single payer system. The question is, how to do it? I don't see Baucus, or the House, as having any effect on the cost curve, at all. If I'm missing something, please alert me. Both Zeke Emmanuel and Peter Orzhag have said: rising costs due to rapid use of new medicine (drugs, procedures, machines) and that things like ... view full comment
I didn't allege that insurers will go out of business-they don't need some kind of reform. Point was, their profit margin is thin-so-their premiums can't go much lower. You were the one who wanted a lever to possibly be paid out of those profits.
I agree wholeheartedly-if health care costs don't moderate-many Americans won't be able to afford them-even if we had a single payer system. The question is, how to do it? I don't see Baucus, or the House, as having any effect on the cost curve, at all. If I'm missing something, please alert me. Both Zeke Emmanuel and Peter Orzhag have said: rising costs due to rapid use of new medicine (drugs, procedures, machines) and that things like accountable care organizations and medical homes won't do it.
We would like to make health insurance less expensive as follows: reform torts, allow small businesses to "pool" their purchasing power (we think that such pools of 2,000 or so employees would earn great premiums and guaranteed issue/community rating without a change in the law), develop a reasonable "policy" (enough to cover what Americans really need) and allow insurers to sell that across state lines.
With above, no need for public option. CBO says-if public option competes (meaning, it can't use Medicare's lower reimbursement rates)-then, premiums would be same as from private insurers. Thus, for those who thought/argued that Feds are better, or private insurers are evil/fat/worthless-well-CBO says they're pretty efficient.
Lobo,
To be clear, I am not defending the Baucus plan. Despite the manner in which the reports by PriceWaterhouseCoopers and Oliver Wyman have been pilloried in TNR and elsewhere, I find it plausible that, under the Baucus plan, health insurance premiums will increase more than they otherwise would. My point was that competition in the form of interstate selling and/or a competing public plan would reduce (or at least reduce the rate of increase of) health insurance premiums. Absent reduction in the cost of medical care itself, that would mean reduced profits for the private insurers.
Now, I was not aware that the profit-margin in the insurance industry is as thin as you say it is. (And ... view full comment
Lobo,
To be clear, I am not defending the Baucus plan. Despite the manner in which the reports by PriceWaterhouseCoopers and Oliver Wyman have been pilloried in TNR and elsewhere, I find it plausible that, under the Baucus plan, health insurance premiums will increase more than they otherwise would. My point was that competition in the form of interstate selling and/or a competing public plan would reduce (or at least reduce the rate of increase of) health insurance premiums. Absent reduction in the cost of medical care itself, that would mean reduced profits for the private insurers.
Now, I was not aware that the profit-margin in the insurance industry is as thin as you say it is. (And I take your word for it for purposes of this discussion.) If it is, then it seems that increased competition, whether by interstate selling or otherwise, and the concomitant lowering of premiums will put a substantial number of insurance carriers out of business. That seems especially true if insurers are not permitted to discriminate based on risk factors. Indeed, a featured argument in opposition to a "public option" is that it will put private insurers out of business and result in a single payer system. And as premiums continue to rise, with or without the Baucus plan, and more and more people are unable to afford health insurance, thus reducing the demand for health insurance, won't that further reduce profits and put more insurance companies out of business? So, setting aside the imperative of universal or near-universal coverage, doesn't it seem that some kind of reform is going to be needed for the financial health of the insurance industry itself?
You suggest some ways of making health insurance less expensive (by the way, who is the "we" you are referring to when you say "We would like to make health insurance less expensive as follows"?):
-- Tort reform: By this I presume you mean making it more difficult to sue or succeed in suing physicians for malpractice, which in turn might reduce the cost of malpractice insurance and reduce the incentive to administer unnecessary treatments, tests or procedures. I think that is worthy of consideration, but analysts seem to say that malpractice insurance constitutes a very small portion of the overall costs of health care. We also would want to carefully consider the effect any tort reform would have on the quality of health care delivery. Even under the current tort regime, I have recently witnessed some spectacular negligence on the part of health care providers.
-- Allowing small businesses to pool their purchasing power: Do you think the insurance industry could absorb the reduced revenue that would occur from allowing small businesses to "pool" their purchasing power? By what percentage do you think premiums would drop by allowing small businesses to pool? My sense is that currently most health insurance is purchased through pooling via employers. And the cost of health insurance is nevertheless becoming an unbearable burden for both employers and employees.
-- Develop a reasonable "policy" sufficient to cover what people really need: Not sure what you mean here -- an insurance policy that will have a relatively low premium because it will have only bare bones coverage? I have not heard anyone talk about that before. Some insurance bureaucrats will decide what "Americans really need"? Who will compel insurers to sell such policies? And what percentage of the currently uninsured will be able to afford these bargain policies?
-- Allowing insurers to sell across state lines. I have never quite understood the objection to this, even though it is not clear that it would reduce premiums sufficiently to make health insurance universally accessible. However, given the thin profit margin in the insurance industry, it is not clear that interstate selling could result in substantially reduced premiums, particularly if the antitrust exemption remains in place.
The pro-competitive effect of a public plan would depend upon how it is structured. If it CAN use Medicare's lower reimbursement rates, then it should be able to charge lower premiums for those who cannot afford private insurance, and perhaps have the effect of lowering premiums for private insurance, depending upon the level of income at which the public plan would be available. But even if a public plan must pay the same reimbursement rates that private insurers do, why wouldn't the absence of shareholders and lack of need to make a profit nevertheless result in lower premiums for the public plan?