The Health Insurance Companies Make Our Case For Us

It's official. The Baucus POS health care bill has cleared committee, and now sits, dripping, on the Senate floor. (In this case, POS can either mean Piece of Shit, or Point of Sale; take your pick, they both fit.)

 

We have to bear down starting now. We must get off our butts and contact our Congressperson and both Senators, to support a massive reform bill with a strong public option.  And we should do so whether our political representatives are already on record as being against a public option or not, or even Republican. It's time to put the fear of Gawd into these people.  While you're at it, send a message to the White House as well, and make sure they know a strong public option is an absolute necessary. And while you’re at it, let them know the health insurance industry now agrees with you.

 

There are five bills altogether; three in House and two in the Senate, and all but the Baucus POS bill has a public option, so the odds are in our favor. It's hard to imagine that the merger of these bills could possibly end up without a public option, but stranger things  have happened, and this is too important to leave to chance. We have to harness the same energy to fight this that we harnessed to get President Obama elected in the first place. There seems to be a tendency to think we did our job last November, and now he's just supposed to do whatever we want,  and that's just nuts. Getting him elected was only the beginning, folks. It was to provide us the means to try and pass reforms; it wasn't a guarantee of reform itself. If President Obama and the progressives in Congress are going to do this, they need our help.

 

A strange thing happened the other day, and I wonder how many actually noticed it. We actually received a major gift, in the form of a report in the costs to the system if the Baucus bill passes. And the gift came from an unlikely source; the health insurance industry.

 

I actually downloaded this report and read it. I thought it would be painful, but I ended up laughing my ass off. You'll see why as I go through this. If you’d like to read along, feel free; the report is right here.  (it’s not very long, so don’t worry…)

 

Let’s start with the section entitled “Key Findings,” which is on page 4 (I’m using the pdf page numbers).  I’ve been reading all sorts of analyses of this report, but the report itself is enlightening, and while I disagree with a few of their conclusions, a lot of them are actually quite useful. For instance, check this out:

 

There are four provisions included in the Senate Finance Committee proposal that could

increase private health insurance premiums above the levels projected under current law:

o Insurance market reforms coupled with a weak coverage requirement,

o A new tax on high-cost health care plans,

o Cost-shifting as a result of cuts to Medicare, and

o New taxes on several health care sectors.

 

As many of you will recall when I first discussed the Baucus mark-up, I told you there were a few things to like about the bill. Some of the insurance market reforms, for example, were pretty good, and would probably cover about 20-25 million more people than are covered today. But there were a couple of key things missing; one was a mechanism to control the price of insurance, and the other was a method for managing the additional risk that all insurance providers will have to manage, once this many people were added to the rolls of the insured.

 

In plain language terms, PriceWaterhouseCoopers, who authored this study, and the insurance companies are correct when they claim the Baucus bill would probably increase premiums greatly. They are, however, lying when they claim it will increase prices more than doing nothing. But we want the Baucus bill to go down in flames, so if anyone mentions this to you, just nod and say, “Uh huh… that’s why I don’t support the Baucus bill.”

 

I’d also note the two mentions of taxes above, and say that I concur with the report on these, as well. Yes, we will probably have to raise taxes on some in the upper income brackets to pay for universal health insurance. But taxing high-end insurance policies and premiums will just discourage people buying such plans, which is just plain stupid if private insurance is going to be in the mix at all. Look; the more a rich person pays into the health insurance system, the less the rest of have to pay. If they want to pay premium prices on a premium plan, that’s actually a benefit to us.

 

Most of the next 5 pages is simply more of a summary of the findings. Apparently, PwC felt the need to state their findings a half dozen times before getting to the meat of the report. So, go to page 10, where you will find the following passage:

 

In the Senate Finance proposal, the rate band restrictions9 would result in a maximum spread in rates by age to a 4-to-1 ratio. This ratio would further increase costs for younger individuals while reducing costs for older individuals. However, this reduction in costs for older individuals in underwritten states would be more than offset by the 41% to 54% increase in average premiums mentioned above. In the underwritten states, the combined impact of guarantee issue and rate band restrictions could be expected to result in an increase in premiums of 59% to 63% for 18-24 year olds while older individuals aged 60-64 could be expected to see increases in the 33% to 37% range assuming a low or weak mandate and a maximum 4-to-1 rate band ratio.

 

This may seem like insurance company pablum, but the fact of the matter is, this reinforces what I told you in my original post about this bill. Instead of everyone paying their fair share based on the size of their family and the number of people covered, premiums will largely be based on age. But the bottom line is, under the Baucus bill, everyone will see substantial increases in the cost of premiums. I think their analysis is off by a factor of 2, but the bottom line is, they’re making a major case for equalization of premiums, and a public option, to mitigate their risk and increase competition.

 

Think about this; this industry is promising you a near doubling of premiums over the next ten years under the Baucus bill. If there was competition in the industry, can you even imagine them telling you they’ll have to double already-high prices ten years in advance? Can you imagine General Motors advising you that the cost of their vehicles will double in price over the next ten years, knowing that Toyota would probably undermine them by promising to freeze prices for the first five years, and promising no more than a 20% increase in the next ten? It’s because there is competition in the car industry, and there is absolutely none in the private health insurance industry.

 

Scroll down a little on Page 10-11, and you find this:

 

In addition, there are several factors that could contribute further to the premium increases likely to result from these reforms and potentially threaten to create premium spirals. These include:

 

·         A lack of coordination between the implementation of new market rules and the phase-in of the individual coverage requirement. While the new market rules are implemented in full in Year 1, the individual coverage requirement is delayed and then phased in gradually. Once the penalties for lack of coverage are fully phased in, they are estimated to be less than 10 percent of the average cost of coverage resulting in a relatively low incentive for individuals who are healthy to buy insurance.

·         Because there is no coverage requirement in Year 1, we would anticipate significant adverse selection to occur in the existing market, increasing premiums for those who have coverage today. Higher premiums will result in more individuals being exempted from the coverage requirement. Once the requirement is implemented, the penalties will be phased in, so that they will not reach full effectiveness for several years. This lack of coordination increases the likelihood of a premium spiral that “gets ahead” of the coverage requirement which, with the combination of an income-based opt-out and low penalties, may further reduce the incentive for those who are healthy to buy coverage. This may then cause an increase in premiums for those with coverage today.

·         Proposals to further compress age bands will likely increase the cost of coverage for younger individuals and make it less likely that they will obtain coverage. As fewer and fewer young people come into the system, overall premiums will increase for everyone.

·         New excise tax provisions on various industries that are likely to raise average premiums in the market as discussed below. The non-deductibility of the excise tax further increases the effective impact of the tax leading to further increases on health insurance premiums.

 

Strangely, these are actually very significant problems with the Baucus bill, and once again demonstrate a need for several things that the Baucus bill does not provide. 

 

For example, individual coverage requirements should begin immediately, not at the leisure of either the individual or the employer. Employer mandates and mandatory coverage, with subsidies, are absolute necessities. One way to keep costs down is to cover everyone. They are also correct that the penalties for not carrying coverage are too small in the Baucus bill, which makes them unfair to the rest of us. Everyone should have to carry insurance, unless they can demonstrate sufficient psychic powers to know with certainty when they will become sick or injured. If coverage is not required, then the rest of us have to cover the bills for those who choose not to be covered and end up getting sick or injured anyway.

 

They are also correct that, under the Baucus bill, the meager penalties will do little to encourage younger people without families to carry policies, which will result in higher premiums for people with families and older people.

 

Basically, this report makes a greater case than has ever been made against the Baucus POS health reform bill. But more than that, it makes a great case for the other four bills.

 

Think about this; in just the first 11 pages, they’ve made a brilliant case for mandatory universal coverage. Ironically, the same industry that has been refusing to cover everyone for years, thus causing the crisis in which we currently find ourselves is now reporting to us that not covering as many people as possible will result in higher premiums for everyone.

 

Yes, I know; what they’re actually trying to tell us that not requiring coverage will result in more older, sicker people being covered, and fewer younger, healthy people being covered, which will impact their bottom line. But who cares? They’re TELLING us that covering everyone will result in lower premiums.

 

The next section is a rather long explanation of why the various taxes Baucus is adding to make his asinine plan seem “fiscally responsible” are a bad idea. As I said, I disagree with these, as well. So skip on over to page 17, where you’ll find this:

 

Issue C - Increased Cost Shifting

 

Today, certain costs (e.g., hospital expenses) are shifted to the private sector (employers and consumers) as some participants in the system pay less than their share of the cost of their care. Public programs such as Medicare and Medicaid reimburse less than the cost of care for hospitals services.18 In addition, the uninsured or underinsured may not be able to cover the full cost of care, and this cost is then also transferred to the private market.

 

The initial hope of health reform was that by improving coverage of the currently uninsured, a significant percentage of uncompensated care would be eliminated. This is still anticipated to happen. However, the cost shift "gains" from decreasing the numbers of uninsured now appear to be more than offset by the losses from proposed cutbacks in Medicare and Medicaid spending allocated to the hospital sector.19

 

It should also be noted that the impact of covering the uninsured may be different in communities

constrained by limited hospital capacity. In those communities, covering the uninsured could  actually increase cost-shifting if the newly insured increase demand for healthcare services and the overall mix of hospital patients migrates towards lower paying government programs.

 

The net impact is likely to result in an increase in cost shifting which translates into a 0.8 percent average annual increase in the private sector spending between 2010 and 2019, or $145 on average per year for family coverage in a large group plan (and $55 for single coverage). We note that this cost burden ramps up over the projection period, with an average annual increase in health costs of 1.2 percent over the second five-year period. We assume that this increased cost to the private sector will ultimately impact the cost of coverage for individuals and businesses in both the insured and self-insured market. As a result, premium costs for large group plans will be $37 higher each year between 2010 and 2014 for family coverage ($14 for single coverage), and $255 higher each year between 2015 and 2019 ($96 for single coverage).18

 

 

Okay, stop laughing. For the last 40 years, health insurance companies have been completely unconcerned with cost shifting, as they kept refusing health insurance to anyone who might need it. Now, all of a sudden they’re worried about cost shifting. Some costs are shifted to the private sector, but frankly, that number has been dwarfed by the cost shifting that occurs because these insurance companies refuse procedures, refuse to write policies and cancel policies. When bills can’t be paid, hospitals have to raise prices to cover them. That has an impact on private insurance, when they actually pay bills, but private insurance can raise premiums to cover their costs, while Medicare and Medicaid cannot.

 

But read the above passage again. It creates a great argument for a universal health care system, as well as a public option, and even more. They have thus far made a really good argument as to why we need 100% insurance coverage. And now, they make a phenomenal case for universal coverage AND an end to cost shifting. They’re right, you know; shifting costs based on any subjective criteria is unwise, and will result in higher costs for everyone. In this case, they’re trying to make a case against cost-shifting between large-group and small-group plans, and they’re actually correct. Small groups are at a major disadvantage in the system that Baucus creates with his asinine plan.

 

But get this, folks.

 

If the insurance company analysis is correct, and there is a natural disadvantage to cost-shifting between large and small groups, with large groups having an advantage over small groups, then the solution is…

 

Come on, you know the answer, right?

 

The only way to alleviate the problem of cost-shifting altogether is to equalize premiums across the board, and create one large group, and eliminate the small groups.

 

That’s right. If you read the above carefully, you see a very strong rationale for single payer.  Coming FROM the insurance companies themselves.

 

While single payer is off the table at the moment, the argument also applies to creation of a public option. The only way to avoid problems with cost-shifting to a significant degree will be to create a mechanism for absorbing inequitable costs, and combining the small groups into one large group. It’s not possible to create such a mechanism without creating a public health insurance option. At the very least, you need an insurance mechanism that can manage the cost-shifting problem and, according to this analysis, private insurance can’t handle it at all. In fact, they’re right that Medicare and Medicaid pay less than the posted price for services in many cases. Yet, the medical delivery sector still prefers dealing with the public insurance entities, because they pay faster, with less hassle.

 

Again, this report makes a hell of a case for a public option.

 

They lamely try to address this on page 18, with the following:

 

The House Tri-Committee legislation and the Senate HELP bill include a government-sponsored

insurance option that would compete with private insurers in health insurance exchanges. Since

government-sponsored programs have traditionally paid providers less than the private sector, as

enrollment in a government-run plan increases, hospital revenue margins may decrease and

consequently accelerate further cost shift. This would likely lead to increasing payment differentials between the public and private payers and the potential for further spiraling as private sector enrollees, facing continuously higher premiums leave the market20.

 

I said it was lame.

 

Their only complaint about a public health insurance option – after they’ve made a hell of a case why we need one – is that “government plans have traditionally paid” less to providers. That’s it? That’s the extent of their argument? They just made the best case possible for a public option – and single payer, no less – and they try to claim that the differential between payments will cause insurance companies to have to double premiums in ten years?

 

Well, this doesn’t pass a sniff test, either. It has been the case for at least 15 years that Medicare and Medicare pays less for procedures than private insurance. Yet, 10 years ago, the public insurance sector provided about one-fifth of all health care costs, and now it covers one-third.  And given that health insurance profits have quadrupled in the last decade, even in the face of such horrible circumstances.

 

Basically, this report is a gold mine for many reasons. It’s absolutely correct about the Baucus bill; there is nothing in the Baucus bill that pulls the reins in on private insurance prices. We’re expecting them to cover people they consider too risky to cover at the moment; why would we not expect them to raise rates to compensate? There has to be a mechanism in place to spread the risk, and to force them to keep prices low. That requires competition.

 

But more than that, this report makes a hell of a case for universal coverage. We can’t just cover 30 million of the 47 million currently uninsured and expect costs to either stabilize or go down, as this report so eloquently makes clear. If everyone is not covered, expect premiums to go way up.

 

And what better rationale can be provided for the public option than the argument – and remember, this is coming from the insurance industry itself -- that it’s simply not possible to assess risk between small and large groups, without a major problem with cost shifting between those groups. The industry makes it obvious that they are simply incapable of handling the entire system themselves, without a major assist from another entity capable of handling the added load. But if you break down their argument, it’s obvious that the only solution to the problem is single payer.

 

Now, go out there, and agree with Fox News for once. The Baucus plan would cost us too much, and result in too little significant change. But tell everyone who will listen; the only way to fix the problem is to create competition via the only entity that can absorb the impact – a government-run insurance system.