By Revealing Their True Colors, Insurers Eliminate Any Reason to Compromise With Them

The release of the PriceWaterhouseCoopers report reveals the insurance industry's true colors for all to see. Everyone who has followed events closely saw insurers publicly supporting reform ("We want to work with you, Mr. President."). The pros knew that, at the same time, their lobbyists have been working hard to strip the proposals, especially the Senate Finance Committee's version, of provisions that would guarantee robust coverage and might actually keep expenditures under control.

Not content with the prospect of huge new profits from the addition of millions of currently uninsured to their rolls, greedy insurers have worked hard to strip "most of the serious proposals ... to curb costs" from the bills under consideration. (New York Times, "Lobbyists Fight Last Big Plans to Cut Health Care Costs," October 11, 2009) Unless Congress rebels against this duplicity, unhappy voters will discover -- when they need care -- the limitations of the new coverage they must buy. The result is likely to be profoundly disappointing to everyone but the insurers.

As one example, the Finance Committee proposal includes several levels of insurance plans, one of which would require that the insurers cover only 65 percent of medical bills. We already know what happens when out-of-pocket expenses are that high -- they are the 25 million who are underinsured. These are folks who value health insurance enough to have bought a policy they could afford, but who have been unable to actually use the services they need because of the out-of-pocket costs. If this provision passes and everyone must buy coverage or face a penalty, the numbers of underinsured Americans will increase exponentially. Only now they will be the result not only of greedy insurers, but of weak-kneed elected officials who succumbed to pressures from insurance lobbyists.

The silver lining from this cloud of duplicity may be that insurers have destroyed any lingering justification for trying to please them in exchange for their public support of reform. If our Representatives and Senators are as angry as they should be for having been played for fools, they could wind up passing a much stronger bill -- one that would provide good coverage to more people at relatively modest cost. The fact is that reforms that rely on competition among insurers has always been a weak strategy. The reason is that competing firms have only 3 ways to differentiate themselves: availability (who can buy their policies), quality (what the policies cover and the terms of coverage), and price. Of the three, price is the key because it is easiest for consumers to interpret (even though out-of-pocket costs may add considerably to the total annual cost). To keep their prices low, insurers will try (1) to restrict availability to those who are less likely to need medical services and (2) to either reduce the services covered, impose burdensome administrative requirements (like prior approval), or require onerous out-of-pocket payments from subscribers.

If their supporters think I have misstated the case, they should ask the insurers to correct the record and tell us what other tactics they plan to use that would result in their providing good quality coverage at affordable prices to a wide range of Americans.

Otherwise, it may not be too late to choose one of the stronger approaches that have been rejected. One, of course, is Medicare for All (aka "single payer"). It would cover everyone for a comprehensive set of benefits and a Commonwealth Fund analysis shows it would be less expensive than the proposals now being considered. Its principal weakness is cost containment because although it changes incentives on consumers to find a personal primary care physician, to use preventive services, and to seek care early in an illness episode, it would continue to pay providers fees for individual services.

A more radical solution would be to require everyone to pay an income-related amount into a federal Health Insurance Fund (HIF) and to issue vouchers with which they could choose a competing private insurance policy. (See my blogs about Paying for Health Reform, Parts 1 and 2, August 12 and 13, 2009.) Private insurers would offer identical comprehensive benefit packages, but the HIF would pay them risk-adjusted amounts. The insurers would differentiate themselves in the providers they offer and in the quality of their service. Risk-adjusted payment would protect those that happened to attract large numbers of people at higher risk for using services (older or with pre-existing conditions), and would prevent those that happened to attract disproportionate numbers of healthy people from reaping a windfall. Over time, insurers might recognize the value of negotiating arrangements with providers that, by sharing the financial risk, could improve quality by stimulating the formation of groups and facilitating the use of coordinated teams to provide care.

The bottom line is that the insurers have demonstrated that there is no reason any more to cultivate their support. That being the case, Congress has a new chance to do the job right.

Davidson, a Boston University School of Management professor, is author of the forthcoming book, In Urgent Need of Reform: The U. S. Health Care System.

Comments

[Carl Caroli]

Congress hasn't done the right thing in a long time, which is why we're in the mess we're in today. Congress does what it needs to do to get it self re-elected.

[NCIndependant]

Revealing? Someone was surprised by this?

[GreatNews27]

Ok, let's do this one more time.

1. Our representatives do not care what the insurers colors are as long as their checks clear.
2. Congress is only interested in Congress. The rest of the country does not matter to them.
3. 'We' do not deal with the insurance companies, Congress does. See 1 and 2.
4. There will be no public option, only mandates. I hope I'm wrong on this but see 1, 2, and 3.
5. Republicans have gone off the planet and they don't care who notices. I expect to hear Kyl say that people who die from lack of insurance deserved to die and should have been killed regardless of insurance coverage.

Bottom line: 'We' do not get to decide on this. The people who have been getting paid millions to side with the insurance companies get to decide. Guess who wins?

[rad21]

The health-insurance companies to a great extent is responsible for the mess. Their 15-30% over-head costs contributes little to healthcare. As fiduciaries for payment, insurance companies have a duty to eliminated the "waste, fraud and abuse" of the healthcare providers.

Instead of hiring an army of actuaries to deny and drop insurance, they could have charged all clients the same rate and rebated the savvy consumers of healthcare. The insurance companies could provide "preventive care" (opportunities) for the community; rather than emphasize the high-priced individual care which is the hall-mark of today's healthcare system.

Insurance companies could have refrained from take-overs and mergers of the last decades where golden parachutes for top executives were the norm; not to mention the high priced consultants, lawyers, bankers etc. all paid from the healthcare-dollar. Then there is the wastage of health-dollars in campaign-c­ontributio­ns and lobbyists. All these factors contributed to healthcare insurance rising at two to three times the rate of inflation, over the last three decades.

[Greg2000]

You are a Professor of health policy and management at a prestigious school. Can somebody tell me why people like you are not on CNN more often? Why Alex Castellanos?

And we wonder why Americans can elect somebody like Bachman to congress.

[1differentdrummer]

Agreed. Insurers are in it for the $$$ and insureds are the means to get that. They'll rip you off in a heartbeat if they can. Their toadies in legislatures have been bought to write laws best for insurers. Pound those guys and turn them out if they don't change that. Meantime, the public option is good and single payer even better.

[blinkthink]

MONEY is the reason the insurance companies control us and Congress.
Trust any insurance company to lower costs (even if you could buy across state lines) and I would say you have become delusional. It's like Wall Street, but worse. Wellpoint just cut their own employees' benefits, claiming it had to happen or face another round of lay-offs. Bet the CEO still rakes in her millions. Bet they still are paying $800k to Evan Bayh's wife for sitting on the board, too.

[1differentdrummer]

Buying across state lines is cheaper because the benefits are lower in some states. For example, not all states require maternity coverage or wellness benefits aside from federal mandates.

[Ron44]

The time of Health Insurance Company's must come to an end!!! They only want your money and do not care if you die!!!!

[Carl Caroli]

Even though the insurance companies have shown that they are blatantly more concerned with profits than they are with actual health care, to expect our representatives to now act accordingly is wishful thinking. Unless of course we prohibit their lobbyists from working with or for legislators, prohibit their corporate dollars from flowing into to their campaign funds, and sweep out all the current crop of spoiled and soiled congressmen and senators. But that won't happen, which is why the insurance companies have the unmitigated gall to do what they are doing. Sadly, our president is afraid to draw a line in the sand because he knows they will not only cross it but are itching for the fight since they have more money and influence on the rest of our sleazy representatives that he has.

[Ron44]

Paid Lobbyists must be outlawed! How about 25 years in prison for each count???

[dexxjones]

LOL! oh NOW they've done it! give me a break. they didnt just now, at the last moment eliminate any reason to negotiate with them. there was no reason to negotiate with them in the first place.

in any rational country, the heads of these companies and many of the managers would be on trial for mass murder. each person who has died because of a "pre-existing condition" (you know, aka being human) and each person who has been a victim of recision (you know, fraud) is a potential murder trial.

this article is goofy.

[iridium53]

Sorry, less important.

[iridium53]

We regulate the heck out of public utilities - power, water, etc.
They provide necessary services and are given a required rate of return.

Why not regulate the heck out of health care companies?

Why do we give them an anti-trust pass?
Why do we allow them to profit so well from our sickness?

Is your life, the life of your parents, the life of your spouse, or the life of a child, somehow more important than getting power from the plug in your home?

And, if not, why shouldn't we regulate their delivery of service just as we do the power company?

[abbienormal]

I have been asking this question for weeks. So far, no response from anyone.

[DRaymond]

Definitly we need to get rid of that 65 percent option. Most people who declare bankruptcy because of medical problems were insured when the medical problems occured. 35 percent of a serious medical problem will drain pretty much anyone in the middle class dry very fast.

We keep forgetting that the main reason why our health care costs are high is because people postpone early diagnostic and preventative care and the main reason for that is deductibles and copayments.

[doriath22]

Eli Wallach's character in The Magnificent Seven put the attitude of insurance companies most eloquently when descrbing the people of the village he was terrorizing: "If God didn't want them to be sheared, he wouldn't have made them sheep"

[silverball]

....or congressme­n/women...­.

[WorkingClass]

Was there still someone somewhere unaware of the "insurance industry's true colors" The health insurance companies MUST be destroyed.

[Bonobo]

President Obama, apparently. Maybe Rahm Emmanuel. I'm sure the Blue Dogs all knew, but they were okay with it.