The Health Insurance Companies Make Our Case For Us

It's official. The Baucus POS health
care bill has cleared committee, and now sits, dripping, on the Senate floor.
(In this case, POS can either mean Piece of Shit, or Point of Sale; take your
pick, they both fit.)


We have to bear down starting now. We
must get off our butts and contact our Congressperson and both Senators, to
support a massive reform bill with a strong public option.  And we should do so whether our political
representatives are already on record as being against a public option or not,
or even Republican. It's time to put the fear of Gawd into these people.  While you're at it, send a message to the
White House as well, and make sure they know a strong public option is an absolute
necessary. And while you’re at it, let them know the health insurance industry
now agrees with you.


There are five bills altogether; three
in House and two in the Senate, and all but the Baucus POS bill has a public
option, so the odds are in our favor. It's hard to imagine that the merger of
these bills could possibly end up without a public option, but stranger
things  have happened, and this is too
important to leave to chance. We have to harness the same energy to fight this
that we harnessed to get President Obama elected in the first place. There
seems to be a tendency to think we did our job last November, and now he's just
supposed to do whatever we want,  and
that's just nuts. Getting him elected was only the beginning, folks. It was to
provide us the means to try and pass reforms; it wasn't a guarantee of reform
itself. If President Obama and the progressives in Congress are going to do
this, they need our help.


A strange thing happened the other
day, and I wonder how many actually noticed it. We actually received a major
gift, in the form of a report in the costs to the system if the Baucus bill
passes. And the gift came from an unlikely source; the health insurance


I actually downloaded this report and
read it. I thought it would be painful, but I ended up laughing my ass off.
You'll see why as I go through this. If you’d like to read along, feel free; the
report is right here
.  (it’s not very
long, so don’t worry…)


Let’s start with the section entitled “Key
Findings,” which is on page 4 (I’m using the pdf page numbers).  I’ve been reading all sorts of analyses of this
report, but the report itself is enlightening, and while I disagree with a few
of their conclusions, a lot of them are actually quite useful. For instance,
check this out:


There are four provisions included in the
Senate Finance Committee proposal that could

increase private health insurance premiums
above the levels projected under current law:

o Insurance market reforms coupled with a weak
coverage requirement,

o A new tax on high-cost health care plans,

o Cost-shifting as a result of cuts to
Medicare, and

o New taxes on several health care sectors.


As many of you will recall when I first
discussed the Baucus mark-up
, I told you there were a few things to like
about the bill. Some of the insurance market reforms, for example, were pretty
good, and would probably cover about 20-25 million more people than are covered
today. But there were a couple of key things missing; one was a mechanism to
control the price of insurance, and the other was a method for managing the
additional risk that all insurance providers will have to manage, once this
many people were added to the rolls of the insured.


In plain language terms, PriceWaterhouseCoopers,
who authored this study, and the insurance companies are correct when they
claim the Baucus bill would probably increase premiums greatly. They are,
however, lying when they claim it will increase prices more than doing nothing.
But we want the Baucus bill to go down in flames, so if anyone mentions this to
you, just nod and say, “Uh huh… that’s why I don’t support the Baucus bill.”


I’d also note the two mentions of
taxes above, and say that I concur with the report on these, as well. Yes, we
will probably have to raise taxes on some in the upper income brackets to pay
for universal health insurance. But taxing high-end insurance policies and
premiums will just discourage people buying such plans, which is just plain
stupid if private insurance is going to be in the mix at all. Look; the more a
rich person pays into the health insurance system, the less the rest of have to
pay. If they want to pay premium prices on a premium plan, that’s actually a
benefit to us.


Most of the next 5 pages is simply
more of a summary of the findings. Apparently, PwC felt the need to state their
findings a half dozen times before getting to the meat of the report. So, go to
page 10, where you will find the following passage:


In the Senate Finance proposal, the rate band
result in a maximum spread in rates by age to a 4-to-1 ratio. This ratio would
further increase costs for younger individuals while reducing costs for older
individuals. However, this reduction in costs for older individuals in
underwritten states would be more than offset by the 41% to 54% increase in
average premiums mentioned above. In the underwritten states, the combined
impact of guarantee issue and rate band restrictions could be expected to
result in an increase in premiums of 59% to 63% for 18-24 year olds while older
individuals aged 60-64 could be expected to see increases in the 33% to 37%
range assuming a low or weak mandate and a maximum 4-to-1 rate band ratio.


This may seem like insurance company pablum,
but the fact of the matter is, this reinforces what I told you in my original post
about this bill. Instead of everyone paying their fair share based on the size
of their family and the number of people covered, premiums will largely be
based on age. But the bottom line is, under the Baucus bill, everyone will see
substantial increases in the cost of premiums. I think their analysis is off by
a factor of 2, but the bottom line is, they’re making a major case for
equalization of premiums, and a public option, to mitigate their risk and
increase competition.


Think about this; this industry is
promising you a near doubling of premiums over the next ten years under the
Baucus bill. If there was competition in the industry, can you even imagine them
telling you they’ll have to double already-high prices ten years in advance?
Can you imagine General Motors advising you that the cost of their vehicles
will double in price over the next ten years, knowing that Toyota would
probably undermine them by promising to freeze prices for the first five years,
and promising no more than a 20% increase in the next ten? It’s because there
is competition in the car industry, and there is absolutely none in the private
health insurance industry.


Scroll down a little on Page 10-11,
and you find this:


In addition, there are several factors that
could contribute further to the premium increases likely to result from these
reforms and potentially threaten to create premium spirals. These include:


lack of coordination between the implementation of new market rules and the
phase-in of the individual coverage requirement. While the new market rules are
implemented in full in Year 1, the individual coverage requirement is delayed
and then phased in gradually. Once the penalties for lack of coverage are fully
phased in, they are estimated to be less than 10 percent of the average cost of
coverage resulting in a relatively low incentive for individuals who are healthy
to buy insurance.

there is no coverage requirement in Year 1, we would anticipate significant
adverse selection to occur in the existing market, increasing premiums for
those who have coverage today. Higher premiums will result in more individuals
being exempted from the coverage requirement. Once the requirement is
implemented, the penalties will be phased in, so that they will not reach full
effectiveness for several years. This lack of coordination increases the likelihood
of a premium spiral that “gets ahead” of the coverage requirement which, with
the combination of an income-based opt-out and low penalties, may further
reduce the incentive for those who are healthy to buy coverage. This may then
cause an increase in premiums for those with coverage today.

to further compress age bands will likely increase the cost of coverage for
younger individuals and make it less likely that they will obtain coverage. As
fewer and fewer young people come into the system, overall premiums will
increase for everyone.

excise tax provisions on various industries that are likely to raise average
premiums in the market as discussed below. The non-deductibility of the excise
tax further increases the effective impact of the tax leading to further
increases on health insurance premiums.


Strangely, these are actually very
significant problems with the Baucus bill, and once again demonstrate a need
for several things that the Baucus bill does not provide. 


For example, individual coverage
requirements should begin immediately, not at the leisure of either the
individual or the employer. Employer mandates and mandatory coverage, with
subsidies, are absolute necessities. One way to keep costs down is to cover
everyone. They are also correct that the penalties for not carrying coverage
are too small in the Baucus bill, which makes them unfair to the rest of us.
Everyone should have to carry insurance, unless they can demonstrate sufficient
psychic powers to know with certainty when they will become sick or injured. If
coverage is not required, then the rest of us have to cover the bills for those
who choose not to be covered and end up getting sick or injured anyway.


They are also correct that, under the
Baucus bill, the meager penalties will do little to encourage younger people
without families to carry policies, which will result in higher premiums for
people with families and older people.


Basically, this report makes a greater
case than has ever been made against the Baucus POS health reform bill. But more
than that, it makes a great case for the other four bills.


Think about this; in just the first 11
pages, they’ve made a brilliant case for mandatory universal coverage.
Ironically, the same industry that has been refusing to cover everyone for
years, thus causing the crisis in which we currently find ourselves is now
reporting to us that not covering as many people as possible will result in higher
premiums for everyone.


Yes, I know; what they’re actually trying
to tell us that not requiring coverage will result in more older, sicker people
being covered, and fewer younger, healthy people being covered, which will
impact their bottom line. But who cares? They’re TELLING us that covering everyone
will result in lower premiums.


The next section is a rather long
explanation of why the various taxes Baucus is adding to make his asinine plan
seem “fiscally responsible” are a bad idea. As I said, I disagree with these,
as well. So skip on over to page 17, where you’ll find this:


Issue C – Increased Cost Shifting


Today, certain costs (e.g., hospital expenses)
are shifted to the private sector (employers and consumers) as some
participants in the system pay less than their share of the cost of their care.
Public programs such as Medicare and Medicaid reimburse less than the cost of
care for hospitals services.
18 In
addition, the uninsured or underinsured may not be able to cover the full cost
of care, and this cost is then also transferred to the private market.


The initial hope of health reform was that by
improving coverage of the currently uninsured, a significant percentage of
uncompensated care would be eliminated. This is still anticipated to happen.
However, the cost shift "gains" from decreasing the numbers of
uninsured now appear to be more than offset by the losses from proposed
cutbacks in Medicare and Medicaid spending allocated to the hospital sector.


It should also be noted that the impact of
covering the uninsured may be different in communities

constrained by limited hospital capacity. In
those communities, covering the uninsured could  actually increase cost-shifting if the newly
insured increase demand for healthcare services and the overall mix of hospital
patients migrates towards lower paying government programs.


The net impact is likely to result in an
increase in cost shifting which translates into a 0.8 percent average annual
increase in the private sector spending between 2010 and 2019, or $145 on
average per year for family coverage in a large group plan (and $55 for single
coverage). We note that this cost burden ramps up over the projection period,
with an average annual increase in health costs of 1.2 percent over the second
five-year period. We assume that this increased cost to the private sector will
ultimately impact the cost of coverage for individuals and businesses in both
the insured and self-insured market. As a result, premium costs for large group
plans will be $37 higher each year between 2010 and 2014 for family coverage
($14 for single coverage), and $255 higher each year between 2015 and 2019 ($96
for single coverage).



Okay, stop laughing. For
the last 40 years, health insurance companies have been completely unconcerned
with cost shifting, as they kept refusing health insurance to anyone who might
need it. Now, all of a sudden they’re worried about cost shifting. Some costs
are shifted to the private sector, but frankly, that number has been dwarfed by
the cost shifting that occurs because these insurance companies refuse
procedures, refuse to write policies and cancel policies. When bills can’t be
paid, hospitals have to raise prices to cover them. That has an impact on
private insurance, when they actually pay bills, but private insurance can
raise premiums to cover their costs, while Medicare and Medicaid cannot.


But read the above
passage again. It creates a great argument for a universal health care system,
as well as a public option, and even more. They have thus far made a really
good argument as to why we need 100% insurance coverage. And now, they make a
phenomenal case for universal coverage AND an end to cost shifting. They’re
right, you know; shifting costs based on any subjective criteria is unwise, and
will result in higher costs for everyone. In this case, they’re trying to make
a case against cost-shifting between large-group and small-group plans, and
they’re actually correct. Small groups are
at a major disadvantage in the system that Baucus creates with his asinine


But get this, folks.


If the insurance
company analysis is correct, and there is a natural disadvantage to
cost-shifting between large and small groups, with large groups having an
advantage over small groups, then the solution is…


Come on, you know the
answer, right?


The only way to
alleviate the problem of cost-shifting altogether is to equalize premiums
across the board, and create one large group, and eliminate the small groups.


That’s right. If you
read the above carefully, you see a very strong rationale for single payer.  Coming FROM the insurance companies


While single payer is
off the table at the moment, the argument also applies to creation of a public
option. The only way to avoid problems with cost-shifting to a significant
degree will be to create a mechanism for absorbing inequitable costs, and
combining the small groups into one large group. It’s not possible to create
such a mechanism without creating a public health insurance option. At the very
least, you need an insurance mechanism that can manage the cost-shifting
problem and, according to this analysis, private insurance can’t handle it at
all. In fact, they’re right that Medicare and Medicaid pay less than the posted
price for services in many cases. Yet, the medical delivery sector still
prefers dealing with the public insurance entities, because they pay faster,
with less hassle.


Again, this report
makes a hell of a case for a public option.


They lamely try to
address this on page 18, with the following:


The House Tri-Committee legislation and the
Senate HELP bill include a government-sponsored

insurance option that would compete with
private insurers in health insurance exchanges. Since

government-sponsored programs have
traditionally paid providers less than the private sector, as

enrollment in a government-run plan
increases, hospital revenue margins may decrease and

consequently accelerate further cost shift.
This would likely lead to increasing payment differentials between the public
and private payers and the potential for further spiraling as private sector
enrollees, facing continuously higher premiums leave the market


I said it was lame.


Their only complaint about a public health
insurance option – after they’ve made a hell of a case why we need one – is that
“government plans have traditionally paid” less to providers. That’s it? That’s
the extent of their argument? They just made the best case possible for a
public option – and single payer, no less – and they try to claim that the
differential between payments will cause insurance companies to have to double
premiums in ten years?


Well, this doesn’t pass
a sniff test, either. It has been the case for at least 15 years that Medicare
and Medicare pays less for procedures than private insurance. Yet, 10 years
ago, the public insurance sector provided about one-fifth of all health care
costs, and now it covers one-third.  And
given that health insurance profits have quadrupled in the last decade, even in
the face of such horrible circumstances.


Basically, this
report is a gold mine for many reasons. It’s absolutely correct about the
Baucus bill; there is nothing in the Baucus bill that pulls the reins in on
private insurance prices. We’re expecting them to cover people they consider
too risky to cover at the moment; why would we not expect them to raise rates
to compensate? There has to be a mechanism in place to spread the risk, and to
force them to keep prices low. That requires competition.


But more than that,
this report makes a hell of a case for universal coverage. We can’t just cover 30
million of the 47 million currently uninsured and expect costs to either
stabilize or go down, as this report so eloquently makes clear. If everyone is
not covered, expect premiums to go way up.


And what better
rationale can be provided for the public option than the argument – and remember,
this is coming from the insurance industry itself — that it’s simply not
possible to assess risk between small and large groups, without a major problem
with cost shifting between those groups. The industry makes it obvious that
they are simply incapable of handling the entire system themselves, without a
major assist from another entity capable of handling the added load. But if you
break down their argument, it’s obvious that the only solution to the problem
is single payer.


Now, go out there,
and agree with Fox News for once. The Baucus plan would cost us too much, and
result in too little significant change. But tell everyone who will listen; the
only way to fix the problem is to create competition via the only entity that
can absorb the impact – a government-run insurance system.

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