photo by Roby

photo by Roby

The big story from the weekend is that AHIP, the lobby for the insurance industry, waved around a study from Price Waterhouse Coopers (the Oscar people) claiming that, as a result of the Senate Finance Committee bill, health insurance rates will rise $4,000 faster by 2019 than if there were no bill at all. This study was summarily typed up by the Washington Post and the New York Times, though neither of them pointed out that the essential truth of this story is that the health insurance industry is saying they will raise insurance premiums faster if the Democrats pass health care reform.

That’s not so much news, as it is a threat.

It also appears to be a threat at variance with the facts. For instance, the report left out the subsidies that would make insurance more affordable to anyone making up to 400% of the federal poverty level. Also, the report simply claims that the excise tax on insurance companies would just raise premium prices instead of causing employers to restructure their health plans and purchase less costly coverage.

And the list of strange assumptions goes on. Plenty of experts, including the CBO, don’t think health care providers will simply charge private insurers more to make up for declining revenue from Medicare. The experts could all be wrong, but PriceWaterhouseCoopers doesn’t even acknowledge this belief let alone explain why it might be wrong. Indeed, nowhere in the document does the firm reveal its methods, which is interesting since–unlike CBO or even, say, a private outfit like Lewin–PriceWaterhouseCoopers is not particularly known for this sort of modeling.

This just appears to be a bogus document to try to scare Congress into removing the tax on high-end insurance plans. The Senate Finance Committee described it in that way today.

“This report is untrue, disingenuous and bought and paid for by the same health insurance companies that have been gouging too many consumers for too long as they stand in the way of reform yet again. Now that health care reform grows ever closer, these health insurers are breaking out the same, tired playbook of deception to prevent millions of Americans from getting the affordable, accessible care they need. This report is pitching some seriously flawed analysis that nobody’s buying as it excludes all the provisions that will actually lower the cost of coverage – tax credits, grandfathering for existing policies, increased enrollment in private coverage and administrative savings from a more efficient mechanism for purchasing coverage. It’s a health insurance company hatchet job, plain and simple.”

The best face you can put on this is that the weakening of the individual mandate by the Finance Committee means that fewer Americans will have health insurance coverage, shrinking the risk pool and driving up costs. But as has been relentlessly documented, without a public option, there is no reason to set up a forced market for health insurance that would guarantee billions more in profits for the insurance industry. Anyway, experts have shown that the industry could easily cherry-pick individuals and weed out the sick to maximize profits. And they will try to use the insurance exchanges to do it:

Despite reforms prohibiting discriminatory practices, insurers would still have powerful incentives to cherry pick low-cost people and mistreat/shoo away high-cost people. While the reform bills include a risk-adjustment mechanism to reallocate dollars within the exchange(s) from insurers with lower-cost enrollees to insurers with higher-cost enrollees, that mechanism would likely fail to capture all the adverse selection effect, and insurers would have strong incentives to undermine the rules and deceive federal/state regulators trying to counteract the perverse incentives […]

…what it tells us is that the insurers are counting on lots of younger, healthy people being forced to pay premiums, so they won’t be stuck with just older/sicker people with higher costs. [AHIP is] implicitly confirming that the scheme focuses insurers’ incentives on attracting the young and discouraging the old. These same incentives will be driving the industry whether the number of uninsured is 25 million or 17 million (as projected for the House bills).

The industry appears to want it both ways: they want to force everyone to buy their insurance, while cherry-picking the healthiest members of the uninsured for themselves, and sacrificing nothing in profits–in fact, increasing them.

The Senate Finance bill doesn’t give the insurance industry every single thing they want, so they’ve decided to go to war with it. Which gives top Democrats a choice: now that the insurance industry has revealed itself to be utterly contemptuous of any reform, does leadership really have to be solicitous toward it in any way, like by eliminating the market competition of a public option?

David Dayen

David Dayen