Insurance Industry Threatens Clients via Paid Reform ‘Analysis’
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The health insurance industry has released a sponsored “study” to show that if the Senate finance committee’s version of healthcare reform were to pass, they would explode costs over the next few years by as much as 40%. The report is being greeted with outrage, as the insurance firms, which stand to reap possibly hundreds of billions in new business from expanded coverage, appear to be trying to extort a strict universal mandate with harsh penalties for noncompliance.
Top political analysts are taking sides, but even opponents of healthcare reform are saying the insurance industry may have “overplayed its hand”, revealing its lack of interest in competing fairly in an expanded market with lower costs. Proponents of the “public option”, designed to keep the insurers from raising rates arbitrarily and abusively, say the report is the best and clearest argument that could be made for why such a low-cost public option is needed.
What’s more, a recent CBO analysis of the Senate finance committee’s proposal projected it would reduce costs per patient, be deficit neutral and would actually reduce federal spending by $81 billion over ten years. If that analysis is accurate, it means the average patient would see costs come down, and private insurers would have to compete in that market environment. The 40% rate-increase report, in this light, seems like a pre-emptive strike intended to impede those cost reductions.
There are reports suggesting the analysis was “ham-fisted” and unscientific, and may have been thrown together for political reasons, as part of a disingenuous PR campaign being waged by for-profit firms. PriceWaterhouse Coopers, the firm that carried out the analysis, is being criticized for a history of producing such reports suggesting reforms forcing private business to compete or to work under higher costs would devastate the household budgets of American families.
There have been calls by some to investigate what level of integration or partitioning there might be between the paid analysis and financial management and consulting departments. Some critics believe the firm might be manipulating research —the current report has been slammed for cherry-picking data, economic theory and legal analysis— in order to lobby for their own clients’ bottom lines.
PriceWaterhouse Coopers’ client roster includes the following insurance firms: Ace, American International Group, AMB Generali, AXA, Legal & General, Millea Holdings, Progressive Corporation, Protective Life Corporation, Prudential Financial, Standard Life, Swiss Re, Zurich Financial Services, as well as the following pharmaceutical and biotech firms: Bayer, Biogen Idec, Bristol-Myers-Squibb, Genzyme, GlaxoSmithKline, Johnson & Johnson, Merck & Co., Novartis, Novo Nordisk, Sanofi-Aventis, Teva Pharmaceutical Industries, Wyeth.
The health insurance industry seeks to maximize profits. Its representatives in Washington tell us that only by doing this can the industry “maximize efficiency”, that this is the logic of the marketplace. But competing theories of market economics suggest in a functioning market, businesses seek not to maximize profits, but to optimize the balance between profits and customer value.
The industry’s opposition to these reforms is very clearly oriented not toward optimizing customer value, but to maximizing profits at the expense of all other players in the system, with no regard to the broader economic impact wrought by such a strategy. A 40% increase in coming years would directly contribute to a perilous increase in the rate of household bankruptcies, would cause businesses to lay off workers or cut benefits, possibly drive some small businesses to bankruptcy, and force millions out of the insurance market.
The PWC report may be the clearest indication yet that new insurance regulations should not only create a low-cost public option to compete with insurers, but that their pricing mechanisms should be regulated as well. The health insurance industry is more than dysfunctional: it has adopted pricing and profit schemes that cannot sustain the levels of enrollment required to continue expanding their business.
There is not enough household wealth or wage-potential in the average American’s life to fund the massive increases in cost the insurance companies have been imposing and continue to project out into the future. The only way the industry’s current level of enrollment (35% of the population) is sustainable is for the rate of cost increase to slow to the rate of inflation.
This means a lower per-patient profit in coming years, so the only way for the insurance industry’s revenues, and therefore profits, to continue expanding significantly is for millions of new people to join the insurance markets. Whether the insurance industry likes it or not, whether it wants to swallow the necessary new regulations and cost-curbs due to competition, the current reforms are the only real hope the industry can continue to function as it plans, on such a large scale.
AIG is just one example of a massive insurance firm whose mega-profits and uncontrolled growth forced the firm into risky decisions, anti-market behavior, and ultimately, catastrophic collapse. The roughly 108 million people who depend on private insurance to pay their medical bills cannot afford to see their healthcare coverage evaporate, or be scaled back, or cut-off, because the firm responsible for that coverage is overextended or is crippled by not being able to meet irrational profit expectations.
Individual executives, and individual firms, may be convinced that what is best for their firm is the opportunity to expand profits without constraint from regulation, market dynamics or evidence-based analysis, but the fact is: the unwillingness to deal with the sustainability of the balance between pricing, services and market access, is now a deeply ingrained pathology the insurance industry is ill-prepared to deal with.
Since the year 2000, health insurance premiums have more than doubled, increasing by 133%. If this happens again over the next ten years, the average household would not have enough money left for rent and food, let alone transport and the other basic expenses of maintaining their existence. It is inevitable that such a situation will lead to mass flight from the insurance market and/or mass bankruptcy and the deterioration of the healthcare system in general.
The PWC report is incomplete. It flagrantly ignores key provisions aimed at reducing costs to consumers and spurring price competition, such as major new subsidies that would help the uninsured buy into the market, thereby expanding the pool and reducing the premium-level required to maintain solvency across the system. The report specifically states “We have not estimated the impact of the new subsidies.”
The report is an attack on healthcare reform as such, because it was released immediately prior to a key vote in the Senate finance committee, using incomplete analysis to reach entirely false calculations. It is ideologically-based, in that it presumes to dictate that any pressure on insurers will drive a massive cost increase, ignoring the very premise that provisions designed to spur competition or lower costs market-wide might actually have a market-wide effect.
The document essentially serves as a form of legislative extortion, threatening consumers with massive penalties if their representatives in Congress pass the much needed reforms. That fact seems to be getting treatment as fairly transparent and egregious. But key question now is whether the report spurs broader support in Congress for an aggressive plan to effect low-cost insurance solutions.
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