The White House was all aghast yesterday when a study by PriceWaterhouseCoopers commissioned by America's Health Insurance Plans (AHIP), the insurance industry trade association, suggested that the Senate Finance Committee's health reform bill would raise the price of health insurance 40% more than would be the case under current law.
If you'd like to review the study, here's a link: http://www.americanhealthsolution.org/assets/Reform-Resources/AHIP-Reform-Resources/PWC-Report-on-Costs-Final.pdf
As is usually the case with the debate over health insurance reform, the report is a mixture of worst-case-scenario doomsday predictions...and some inconvenient truth.
The report focuses on four elements of the Finance Committee's bill:
1)...The introduction of insurance market reforms and consumer protections that would raise insurance premiums for individuals and families if the reforms are not accompanied by a universal coverage mandate;
2)...An excise tax on employer-provided high-value health plans ("Cadillac plans")that in a few years could raise premiums on moderate-value plans;
3)...Cuts in payment rates for public health plans which would accelerate cost shifts to the private sector, and;
4)...New taxes on health care entities which would be passed on to consumers.
AHIP's first concern is that a requirement that health plans be guaranteed issue, and that the variation between rates for the youngest and healthiest vs. the oldest and sickest individuals be not more that 4:1, will raise rates for younger people and make it difficult for them to afford coverage, even with generous subsidies.
The organization's stated concern is that if young people aren't able to buy coverage affordably, and aren't required to buy it, they'll wait to purchase coverage until they're sick, and make a mess for everybody. And if you buy the report's analysis, their conclusion is valid.
But I don't buy it for a second.
The industry's interest in a requirement to purchase coverage is the expectation that an individual mandate would create a brand new pool of young, healthy people who'll pay a lot in premiums cumulatively, but won't use their coverage. This is VERY profitable for insurers. That's why insurers are so interested in keeping prices as low as possible for younger people, even if doing so socks it to older folks (okay, like me).
And right now, while most states limit the variations on group insurance premiums (in Ohio, the variation is plus-or-minus 80%), there's currently no limit on the difference between what insurers can charge people in the individual market. And the differences in premium rates can be staggering.
A change to community rating and guaranteed issue would, indeed, raise premium rates for younger individuals; they might pay a little more than insurance industry actuaries would like to charge them. But they also tend to age eventually, and then will benefit from that subsidy.
A 60% increase in my 24-year-old's insurance premiums would raise them from $125 to $200 per month. But as he gets older, the rating reform suggests that his rate wouldn't be more than $800 per month as he got to his 60's.
I think the industry's real fear is that young folks would jump ship from private insurance to an expanded Medicaid program (assuming they earned less than some appropriate multiple of the poverty line), and they'd lose all that revenue.
I want to talk about the two tax-related issues together, so let's focus for a minute on the cost-shifting boogeyman. The industry's concern is that reductions in the growth of spending on Medicare and Medicaid would accelerate a cost shift to the private sector. The report makes no allowance, however, for the possibility that the spending reductions might actually reduce costs and increase efficiencies on the provider side.
It's an unfortunate political truth that spending cuts in health care are almost always specious...often, they're accounting tricks to move expenditures off the books in one year only to restore them in the next year. But AHIP's analysis suggests NO reductions in the rate of spending will occur over the next ten years, and ALL the excess costs will be passed along to a helpless and hapless private sector. Cost shifting is easy to suspect, and hard to prove...not worth the doomsday picture the industry's analysis suggests.
Now the taxes...that's another story...
The Finance Committee has proposed a 40% excise tax on "Cadillac plans"...basically, plans that cost more than $8000/year for one person or $21,000 for a family, regardless of whether the plan is a group plan or a non-group plan. I've said here before that this provision just shows how little our elected officials know about what health insurance costs.
Last year, when I was forced to shop for non-group insurance for my family, the best price I could get, on a plan with a $3000 family deductible, was $1880 per month: more than my mortgage payment, and a whopping $22,560 per year. Sure didn't feel like a Cadillac plan.
A 40% excise tax on that plan would add up to $9024, making the effective cost $31,584. It's an easy-seeming way to raise revenue, but:
...Do we really expect that insurance companies will just eat that nine grand?...Puh-leez!...Insurance companies are like the house in Vegas: they never lose, because they're paying with your money. Somehow, that cost is going to get passed along, and;
2)...Do we really buy the contention that the tax will force employers to buy less generous plans?...Like what...a plan with a $5000 family deductible?...$10,000?...
And while this is being positioned as a go-after-the-rich-guys tax, I suspect a close analysis would conclude that many folks on generous health plans are union workers and government employees, who will fight like tigers to keep from having those plans modified.
Now maybe there are large employers who would like to think the imposition of such an excise tax could be used as a gun to the head to wring concessions out of their workers. But certainly nobody's saying that.
The taxes proposed for drugmakers and equipment manufacturers fall into a similar category. Do our elected officials really expect these industry groups to swallow hard and just absorb these tax hikes? And when customers/patients encounter rising co-pays or deductibles for medication or medical equipment, they encounter then through their health plans, and blame the insurance companies for the higher prices. They walk, fly, and quack like stealth taxes on consumers...let's call them what they are.
Finally, though, even as I suggest that the insurers aren't all wet in their analysis, I point out a little thing nobody's talking about: The change from a complex, medically-underwritten system of insurance to a community-rated, guaranteed-issue system should vastly simplify the business processes for health insurers, which should result in a significant reduction in administrative costs. Add in the efficiencies that could be produced by the development of highly-automated insurance exchanges, and there's a strong possibility that the administrative costs for small group and individual insurance coverage could be cut from 25-40% of premiums to half of that. And a significant reduction in those administrative costs could really "bend the curve" for small businesses and individuals. The effects of reducing and controlling administrative costs actually magnify over time, if purchasers can de-link the cost of administrative costs from medical costs, and build marketing, distribution, and management systems which take advantage of economies of scale.
Of course, AHIP's analysis doesn't anticipate that, either.
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