Insurance companies have always been an effective villain in the health-care reform debate, but this year the industry thought things might be different. Recognizing the growing sentiment for some kind of change and fully aware that universal coverage would help bulk up their rolls as baby boomers age into the Medicare system, private insurers early on declared their support for President Obama’s health reform effort. So when word came last month that the Democrats were drawing up a new
public relations battle plan, the insurance companies were sent reeling — and
seemed to be caught off guard. A late July memo from the House Democratic
leadership about how to sell reform during the Congressional August recess
told members: “Hold the insurance companies accountable.” House Speaker
Nancy Pelosi called private insurers “villains,” and President Obama, in an exclusive interview with TIME, framed his push for changes to the U.S. health care system as “insurance reform.”
In their view, the insurance companies were being thrown under the bus. During an Aug. 4 conference call with reporters, Karen Ignagni, lead lobbyist for the industry, described the Democrats’ marketing push as a new campaign “launched to demonize health plans,” and “the same old Washington
politics of ‘find an enemy and go to war.'” Said Ignagni, before declaring
insurers’ support for reform, “Attacking our community will not help get
anyone covered.”
But despite their protests that they are being unfairly vilified, the insurance industry is far from ready to simply accept the
reform proposals currently on the table. Most of their efforts are concentrated on
defeating the creation of a public health insurance alternative primarily for Americans currently priced out of the private insurance market. But their opposition to Democratic reform proposals goes far beyond the public option, which they believe will have an unfair, government-afforded advantage over them, and they are quietly lobbying for legislative language changes that could have major consequences.
Insurers have agreed to discontinue practices like turning down customers in
the individual and small group market with expensive pre-existing conditions
and basing premium rates on health status or gender. But one variable
that will persist is age, since older enrollees represent more health risks than younger enrollees, and insurers are doing their best to retain the most flexibility in that area. Current reform legislation in the House and the Senate Health, Education Labor and Pensions committee would allow insurers to vary premiums based on age only by a factor of two, meaning insurers would be allowed to charge older enrollees premiums twice as high as younger ones. That may sound like a huge concession to private insurers, but they insist it would lead to only one of two scenarios: financial ruin for private insurers or exorbitantly high premiums rates for young Americans.
“You couldn’t do business at 2 to 1. The younger people’s premiums would
just be too high,” says Charles Kahn, president of the Federation of
American Hospitals, a lobbying group for investor-owned hospitals, and a
former lobbyist for the insurance industry during the Clinton health care
reform battle of the 1990s. Essentially, a wider “age band,” like the 5 to 1
ratio insurers favor, would allow them to charge middle-aged people not yet old enough to qualify for Medicare higher amounts, while keeping younger people’s premiums much lower. In a recent latter to Henry Waxman, chairman of the House Energy and Commerce committee, one of five congressional committees with jurisdiction over health reform, the president and CEO of Blue Shield of
California wrote, “Given the systematic consequences of imposing such a
tight band, we strongly urge you to widen it.”
Insurers are also keenly aware that they can afford to offer coverage to
everyone who applies only if coverage is truly universal. “If there’s a
requirement that everyone will participate, it’s possible to do these market
reforms without cost skyrocketing,” says Robert Zirkelbach, spokesman for Ignagni’s group, America’s Health Insurance Plans . Put another way, says Kahn, “Insurance isn’t free and you have to have groups with many more healthy people than sick.” As a result, insurers are pushing for harsher financial penalties on Americans who would forgo insurance even in the face of a government mandate. The HELP committee
bill would charge the uninsured a minimum annual penalty of $750 for
individuals, a figure that is far below the annual cost of full-cost premiums, which insurers think the penalty should at least equal in order to succeed. The House draft includes a penalty of 2.5% of modified adjusted gross income.
For much the same reason, another focus of insurers is the provision to provide federal subsidies to lower-income Americans to help them afford coverage. If subsidies are not sufficiently large enough, insurers say many Americans would opt not to buy coverage. AHIP favors subsidies to Americans earning up to 400% of the federal poverty line, the same level of subsidies in both the House
and HELP bills. The Senate finance committee, the lone remaining committee with jurisdiction over health care yet to produce a bill, hasn’t announced which subsidy level it would support. But in an effort to win bipartisan backing and scale back the cost of the bill, it is reportedly considering limiting subsidies to Americans earning just up to 300% of the poverty line.
Looking only at reform elements like age bands, universal mandates and
subsidies, it’s easy to see just how potentially fragile the insurance
companies’ support really is. “It’s like a ball and when you start pulling
on one piece of string, a lot of it unravels,” says Diane Rowland, executive
vice president of the Henry J. Kaiser Family Foundation, a non-partisan,
nonprofit health policy research organization.
One doesn’t have to peer back too far at previous health reform efforts to realize that “the devil is in the detail,” as Rahm Emanuel, President Obama’s chief of staff and a veteran of health reform efforts under Bill Clinton, recently put it in an interview with TIME. Emanuel helped work on the 1996 Health Insurance Portability and Accountability Act, one of several
incremental changes made after the Clinton comprehensive reform never went anywhere in 1994. HIPAA was intended to ensure Americans would not be denied coverage based on pre-existing conditions when they switched from coverage through one job to another or from employer-based insurance to an individual plan.
“I remember all the high-fiving each other [after passage of] portable health
care in 1996,” said Emanuel, before adding, “It’s been empty.” Although
HIPAA prohibited insurers from denying coverage on the basis of pre-existing
conditions, it didn’t limit how much insurers could charge in premiums. The
result: insurers in states without premium caps were charging those with
pre-existing conditions as much as 464% of standard premiums, according to the Government Accountability Office. In addition, the federal and state governments were unprepared for the oversight required to enforce HIPAA, another concern of health reformers this time around. In 1998, for example, federal and state officials discovered some insurers withholding commissions to agents who wrote policies for HIPPA-eligible applicants with pre-existing conditions, in an effort to discourage compliance with the law.
“The problem with health insurance,” says Karen Pollitz, a health policy
expert who has studied the shortfalls of HIPAA, “is it’s really complicated
and fixing it part-way almost never works.” Some skeptics of the insurers’ support this go-around believe that’s what the industry is counting on, even if its advocates and defenders insist that’s just what they are working to avoid.
— With reporting by Karen Tumulty / Washington
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