How To Kill (And Make A Killing From) Healthcare Reform

Mention the term “public option” and the temperature in the room rises rapidly. You’ll hear “keep the government’s hands off my healthcare!” and “Obama’s going to kill grandma” and all sorts of memorably engineered one-liners.

People get overly excited and start bashing every underperforming nationalized (yes, “government-run”) healthcare system they can think of, including Canada and the UK. Which ignores the fact that any of these systems perform better than the US healthcare set-up (see “Why Won’t ‘Nationalized Healthcare’ Countries Clean Up Their Mess?”).

It also ignores the fact that the US is actually considering Switzerland’s social insurance healthcare model (haven’t heard any Swiss bashing, have you?). But “rationing” and “death panels” are the scare words de jour.

Have you noticed what you don’t hear, though? Insurers are not crying, “Stop insurance reform!” What? There are 6 healthcare lobbyists for every Washington lawmaker, $263 million spent on healthcare lobbying so far this year, 428% increase in health insurer profits since 2000, and not a peep to “hold everything!” The silence is deafening.

Silence Is Golden

Now, you don’t rake in that kind of cash from the supposed health of a bunch of plump Americans by being stupid. So what gives?

First of all you will need to understand the political difference between “healthcare reform” and “insurance reform”.

Healthcare Reform = Consumer Protections + Public Option

Insurance Reform = Consumer Protections

Since the general public is now so jittery towards anything involving government, Obama and Co. have resorted to talking about Insurance Reform. This means anything to do with the public option is sitting at the edge of the table, waiting to get swept into the garbage can.

But how did the jitters start? Former insurance industry PR executive Wendell Potter spelled it out in testimony before the Senate. In a PBS interview, he then said:

“…the industry is using the same tactics they’ve used over the years, and particularly back in the early ‘90s, when they were leading the effort to kill the Clinton plan.”

Then there was the game plan to discredit Michael Moore’s “SiCKO”. You can download AHIP’s document here. It spells out the industry’s strategy: “Highlight horrors of government-run systems.” It also recommended threatening Democratic party leaders that if they endorsed the movie, AHIP would run derogatory ads during reelection time, not contribute to their campaigns, and in fact contribute to their opponents.

So it shouldn’t surprise you to find out that it’s the insurance industry behind all those scary phrases being bantered about by talking heads and uninformed citizens today. PBS host Bill Moyers obtained a strategy memo for healthcare reform opponents written by Frank Lutz, the Republican strategy leader. It said:

“First, you have to pretend to support it. Then use phrases like, ‘government takeover’, ‘delayed care is denied care’, ‘consequences of rationing’, ‘bureaucrats, not doctors prescribing medicine’.”

It expanded from there, as you can see in this chart. And insurance leaders themselves haven’t actually had to say a word in public.

Why So Agoraphobic?

Agoraphobia is fear of public places. And health insurers are extremely afraid of a national public option. Why? In Potter’s words:

“The industry doesn’t want to have any competitor…has been shrinking the number of competitors through a lot of acquisitions and mergers. So first of all, they don’t want any more competition period. They certainly don’t want it from a government plan that might be operating more efficiently than they are.”

Yes, Medicare does have administrative expenses of 3% compared to the average private insurer’s 14-20%. So for good measure AHIP also had the supposedly non-partisan health policy consulting firm Lewin Group (turns out it’s owned by UnitedHealth) release a study indicating a government-run plan would undermine private plans and put them out of business.

Fear and claims of foul play certainly are effective, wouldn’t you say? But again, for all the froth it’s worked up over the public option, AHIP seems to be pro-insurance reform. Hmmm.

Private Insurance Bonanza

So what happens if health reform passes WITHOUT a public option, in other words, insurance reform only? Let’s take a look at some provisions in the healthcare reform bills under consideration and survey the territory after a HR 3200-like bill passes.

Coverage Mandates: Each of the healthcare reform bills under consideration includes an individual and employer coverage mandate. Translation: you must buy insurance, and your employer must help you to do so. If you are low-income, the government will subsidize your premiums.

Insurer Impact: Giant revenue gains. Although insurers must now cover those with pre-existing conditions, the huge increase in plan members spreads risk better, and the government will ensure each member’s premiums are paid in full.

Co-ops: If included in the final bill, they will not be able to compete. Small size, no clout in provider reimbursement rate negotiations, and healthcare inexperience will lead to high costs (including high premiums) and eventual failure.

Insurer Impact: Higher membership. Already consolidated industry minimizes competition and reduces individuals’ health plan choices.

Premium and Benefits Regulation: The bills set acceptable premium variation criteria, such as family size, age, and geographic discrepancies, while prohibiting others, such as gender and health status. They also require a minimum benefits standard and ensure the percentage of premiums spent on claims is in line with other insurers. However, no premium caps are included in any bill.

Also, the standards for members’ medical cost reimbursement are going down as we speak, thanks to industry lobbying. The Senate Finance Committee revised its insurer requirement downward from 76% to 65% “to hold down premiums”. However, most group health plans currently cover 80-90% of policyholder’s medical bills.

Insurer Impact: Greater profitability. Provides the ability to charge higher premiums in cooperation with one another, ostensibly to cover any additional costs from sicker members. Also allows the industry to shift more costs onto policyholders by providing less insurance per premium dollar.

Retroactive Policy Cancellation: Also called rescission, none of the bills prohibit this practice for members of individual plans. CEOs of Wellpoint, UnitedHealth and Assurant stated point-blank during a Senate hearing that they will not limit retroactive policy cancellation to only cases of intentional fraud. Apparently Congress doesn’t want to regulate against it?

Insurer Impact: Profitability safety net. Convenient safety valve against removal of lifetime maximum benefits. When members of individual plans rack up too many claims, their policies will be cancelled retroactively from the policy start.

Robert Laszewski, a 20 year insurance industry executive turned consultant, said it perfectly: “It’s a bonanza…hallelujah!” Confirms Potter, the former PR executive turned whistleblower, “It would be quite a windfall.”

Public Over A Barrel

Gerald Shea of the AFL-CIO sees it from the public perspective:

“They have beaten us six ways from Sunday. Every time we want to make a small change to provide cost relief, they find a way to make it more profitable.”

You’ll notice there aren’t any options for you in the above insurance reform scenario. Pay up, or pay up. Insurance premiums have already doubled in the past 8 years, and you pay higher deductibles and co-pays for the privilege. When mandated private insurance is your only choice, you have no right of refusal.

Private health insurers are well aware the next healthcare reform drive won’t come around for 15-20 years or more. People need time to recover and forget the trauma of this reform movement, to feel sufficient pain for Round 3, and to have the right leadership in place to spearhead it.

Maybe we had better knock them out in Round 2?

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future