How Valid Is the Insurers' Attack on Health Reform?

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After months of lending its cautious, very qualified support to health-care reform, the health-insurance industry has lobbed its first bomb at the Democrats' proposals. But many of the industry's assertions appear to have missed their mark.

Just two days before Tuesday's scheduled vote on the Senate Finance Committee's health bill, a report warning that the bill would result in sizable hikes in insurance premiums was released, and then widely panned as a flawed analysis of cherry-picked information. A spokesman for the committee called the report a "hatchet job, plain and simple"; and some Democrats on Capitol Hill claimed that the insurers' broadside would actually ease, rather than slow, passage of health reform by unifying the various factions of the party against an industry with precious little credibility among the public.

White House officials said they felt "misled" by the insurers, who they claimed gave no notice that they were about to release the study. And health-policy analysts fired out press releases all day Monday debunking various points made in the study, authored by consultants PricewaterhouseCoopers, including its assertion that between 2010 and 2019 the Senate Finance Committee bill would cause the typical family health-insurance policy to rise $20,700 more than if no reforms at all were enacted. By Monday evening Jonathan Gruber, a respected MIT economist who has advised lawmakers on health reform, released his own analysis asserting that insurance premiums for young adults, typical families and older Americans would actually decrease by hundreds to thousands of dollars per year under the Senate Finance Committee bill.

What accounts for the discrepancies? One problem with the industry-funded report is that it bases its prediction on provisions in the bill that increase costs, while ignoring others that seek to mitigate those costs — such as subsidies to help many currently uninsured Americans purchase coverage. The report also makes broad assumptions about the impact of reform that conflict with the assessments of the nonpartisan Congressional Budget Office. For example, the report assumes that the bill's proposed tax on pricey "Cadillac plans" will not impact how many businesses continue to provide such plans to employees.

Still, behind all the debunked and debated facts lies one irrefutable truth: even Finance Committee staff admit they do not know the precise effect the bill will have on private-insurance premiums. "It's impossible to figure out what the bottom-line impact is," a committee aide admitted in a Monday afternoon conference call with reporters.

The insurers' central argument against the current version of health reform is that it won't produce enough new insured Americans to make up for the new rules forbidding the insurers from setting premium rates based on health status. Late in the drafting process, chairman Max Baucus accepted changes to the legislation that weakened the "individual mandate," by reducing the financial penalties for Americans who choose to forgo coverage. The changes were meant to help woo potential Republican swing vote Olympia Snowe, who thinks the mandate would unfairly punish Americans who find coverage unaffordable but aren't eligible for subsidies. But the result, according to the insurance-industry-funded report, is that the nationwide pool of people who buy private health insurance on the open market — that is, not through their employers — will be disproportionately stacked with sicker people, because too many young and healthy Americans, with their low medical risk, will not buy coverage.

This criticism, however, ignores several provisions in the bill that mitigate this risk, such as a health-insurance plan designed specifically intended to lure young, healthy Americans into the insurance market. Called the "young invincibles plan," the coverage would be available to Americans 25 years and younger and would have high deductibles and low premiums. The insurance-industry-funded study also disputes the CBO's prediction that the Baucus bill will result in health-insurance coverage for 94% of Americans. Karen Ignagni, head of the America's Health Insurance Plans, which commissioned the study, counters that the group's own analysis predicts a smaller share of the population would have coverage under the Baucus bill.

Other sections in the controversial study assert that any additional cost burdens felt by the insurance industry, such as cuts in Medicare payments to providers like hospitals, will simply be passed to consumers. This could be true in some cases, according to Paul Ginsburg, president of the Center for Studying Health System Change, a nonpartisan policy group. Ginsburg, who has written extensively about such cost-shifting, says that under the Baucus bill, "Hospitals that are the more prominent ones that everybody wants in their plan — they will be able to raise charges to private insurers. Others with more of a Medicaid and uninsured mix, they will probably have to cut their costs."

Still, not all of the Medicare cuts in the Baucus bill would be shouldered by providers with the ability to charge insurers more. The bill, for instance, includes $117 billion in cuts over 10 years to Medicare Advantage plans - private insurance for Medicare — eligible Americans for which the government spends, on average, 14% more than it spends on Medicare beneficiaries. Much of this additional funding already goes into the coffers of insurers, meaning "cost-shifting" in these cases would be done by insurance companies trying to make up for these lost profits by charging more to other customers. The bill also would spend $22.5 billion less (over 10 years) on Medicare payments to hospitals that provide charity care to the uninsured — on the assumption that there would be fewer uninsured patients after health reform.

The insurance industry also takes issue with flat annual fees assessed on health industries (including $6.7 billion on insurers), which it insists would be passed along to consumers. Since the fees are based on each insurer's market share, there's no way of knowing how much premiums could go up as a result. But a Senate Finance Committee aide says the fact that the fees are calculated based on market share — instead of on each individual policy sold — "makes them more difficult to pass through."

There is, clearly, no shortage of disputes over the industry's report. But no matter how flawed it may be, the decision to unveil the study could pose a real threat to the passage of health reform: it marks an end to the White House's long-prized détente with a special-interest group that has lots of money ready to get its message out. In a conference call with reporters Monday afternoon, Ignagni promised, "We will continue to communicate with the American people."