A New and Better (But Still Flawed) Insurance Industry Report

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The health insurance industry is not an unbiased source when it comes to figuring out how the Senate Finance Committee health reform bill will affect costs. No group stands to lose more and will more fiercely protect its own interests – meaning profits. But that doesn’t mean all studies funded by insurers are completely without merit. A report released over the weekend and commissioned by America’s Health Insurance Plans – the lobbying group for private insurers – was widely panned as a selective, dishonest analysis intended to derail the Senate Finance Committee’s plan for health reform. The study said insurance premiums would would cause the typical family health-insurance policy to rise $20,700 more than if no reforms were enacted. Shortly after a backlash began, Pricewaterhouse Coopers, which authored the report, put out a statement saying it knew the study was not comprehensive and excluded key provisions that would have changed the result. But a new report commissioned by the Blue Cross Blue Shield Association and released Wednesday is different.

BCBSA’s analysis, conducted by the consulting firm Oliver Wyman, also predicts insurance premiums for individuals could rise dramatically – for young adults, by some 50% more than without reform. The analysis is carefully written, includes necessary caveats and considers some key pieces of the Finance committee bill omitted from the AHIP study – like the billions in subsidies that would be made available to Americans to help them buy coverage. Said one longtime health insurance actuary, “This is a nice piece of fruit compared to the rotten tomato we got on Monday,” referring to the earlier AHIP study.

One focus of the BCBSA study is the age rating bands built into the Senate Finance Committee bill – these dictate how much difference would be allowed to exist in health insurance premiums for old and young enrollees. Under the Finance bill, insurers would be permitted to charge its oldest customers four times as much as its youngest customers – this is a 4 to 1 ratio. (The House bill calls for a 2 to 1 ratio.) The insurance industry had pushed for at least 5 to 1 and makes the point in its study that the tighter the age band, the higher the costs will be for young adults. This is a valid point – one of the tenets of Democratic health reform plans is that young, healthy enrollees in the individual insurance market would subsidize coverage for older, sicker adults. But here the BCBSA study falters, ignoring a provision in the Finance committee bill that would create room for high-deductible, low-cost health insurance plans for Americans 25 and younger. These policies, known as “young invincibles plans,” would greatly mitigate price spikes. Kurt Giesa, an Oliver Wyman actuary who worked on the BCBSA study said, however, this provision was ignored because “we didn’t think it would have a material affect on the overall analysis.” The BCBSA study also ignored the existence of exchanges which would spur much-needed competition among insurers. Again, the Giesa said “we didn’t find it would have a material impact,” even though the text of the study itself acknowledges that the Congressional Budget Office predicts a 4 to 5 % drop in premiums sold through the exchanges due to administrative cost reductions and competition.

The BCBSA study also makes the argument that the weaker the requirement that uninsured Americans purchase coverage, the higher costs will be for everyone else. This is not a scare tactic – this is true. The Finance committee’s bill has a weaker individual mandate than the bills passed by other committees – penalties for not buying coverage are lower and phase in slowly over time. (The insurance industry wants a strong individual mandate at the outset not because it would reduce premiums for customers, but to get those customers in the first place. The industry stands to gain tens of millions of new enrollees if harsh penalties discourage people to go without coverage.) Said the longtime actuary who reviewed the merits of the study, “The effect of having a very weak mandate penalty is absolutely true, but the question is how bad it would be…if there’s one flaw with this report, it’s that it talks about the ends of ranges as opposed to the averages….They bring up the right topics, but they’re on the high side on almost everything.” Shortly after the report was released, one White House official, eager to link the BCBSA report to the now thoroughly debunked AHIP study told Talking Points Memo, “This report isn’t quite as egregious as the AHIP report…if the AHIP report was a $3.50 bill, this one’s a $3.00 bill.”

The health insurance industry has an agenda here. Congressional leaders are in the process of hammering out details for the bills that will reach the House and Senate floors and this may be the last chance the industry has to influence final language. But some arguments made by the insurers reveal some hard truths pro-reformers have not been eager to advertise: Allowing people who can’t afford it to opt out of insurance coverage would be bad for everyone else. Setting minimum levels of benefits, which reform proposals would do, means the cheapest insurance available under a reformed system would be more expensive that the cheapest available now. (Of course, the cheapest insurance available now leaves many Americans dangerously under-insured.) And young adults buying individual insurance policies would pay a little more than their fair share to help keep costs down for older adults. No matter who says it, these facts are true. And every effort made to ease these burdens just adds to the cost of health care reform.