The Insurers’ Grand Strategy

More well-timed studies to influence the pols and the polls

I have no pipeline to the insurance industry gods, but for more than a year now, I have watched their grand strategy unfold with surgical precision and—yes, you have to admit—brilliance. Every step of the way, the industry has made crisp and calculated moves to maneuver itself into a position of power when the final vote is taken.

So I was hardly surprised to learn that the industry had come out with another study bolstering its case that the weak-tea penalties in the Baucus blueprint will cause insurance premiums to rise. They will rise if everyone, including all those on death’s door, don’t enter the risk pool, bringing insurers a good mix of the healthy and the well. But puny penalties aren’t likely to force them in. Folks, it’s called risk selection, and that’s what makes the private industry tick. As one person currently in the industry told me, “I’m not entirely sure why that is surprising to anyone.”

Last Sunday, Karen Ignagni, the CEO of America’s Health Insurance Plans, announced that insurers would circulate on Capitol Hill the results of a study commissioned by the trade group and prepared by the consulting/accounting firm PricewaterhouseCoopers. It would also promote the study in new advertisements. Just what the public needs—another health message to compete with all the others mingling around in their synapses. New York Times reporter Robert Pear, who has seen these tactics before, labeled the industry effort a “blistering new attack.” Was it this year’s version of Harry and Louise, the infamous advertising duo who helped sink the Clinton’s plan?

The study said that “health reform could have a significant impact on the cost of private health insurance coverage,” and four provisions in Sen Max Baucus’s draft bill would help drive up the cost. They are: insurance market reforms along with weak penalties; a proposed tax on high-cost health plans; cost shifting to insurers resulting from Medicare cuts; and new taxes on various health care sectors, including insurers, that would be passed along to policyholders one way or another. The report showed that the cost of an average family policy, now about $12,300, would increase to $15,500 in 2013 under current law, and to $17,200 if all the provisions were implemented. By 2016, the cost could zoom up to $18,400 and to $21,300. (Pricewaterhouse used last year’s average family premium, which is now more than $13,000, so the numbers may be even higher.) Scary stuff for sure!

The White House and Senate Finance Committee staffers went ballistic, wringing their hands about the authorship of the report and disputing its conclusions. Nancy-Ann DeParle, director of the White House Office of Health Reform, came up with this lame remark referring to PricewaterhouseCoopers: “Those guys specialize in tax shelters. Clearly this is not their area of expertise.” The White House felt it had been ambushed. A Baucus spokesman called it a “hatchet job, plain and simple.”

A year ago, the industry pledged to be Mr. Nice Guy by agreeing to accept all people in the individual market, whether they were sick or well. In return, everyone had to have insurance and the way to do that was to require those who didn’t have it from an employer or the government to buy it. Washington wisdom held that this year was different; insurers were on board. In the July issue of CJR, we pointed out that this reform effort was really no different from previous ones.

But by Sunday the kumbaya stage of health reform had come to a halt, as many observers predicted it would. The Washington Post indicated that the Pax Obama was finito—or, as the Post put it more delicately, the “fragile détente between two central players in this year’s health-care reform drama” had come to an end.

Yesterday, the Internet was abuzz with reports that experts were questioning the validity of the Pricewaterhouse report. Bloggers like Jonathan Cohn questioned the assumptions used by the consulting firm. Cohn quoted MIT economist Jonathan Gruber, one of reform’s loudest cheerleaders and a staunch advocate of the Massachusetts experiment. Cohn said his “modeling has wide credibility even among Republicans.” Gruber apparently examined the PriceWaterhouseCoopers report and told Cohn that he finds that set of claims “implausible.” Cohn cited other surveys suggesting that premiums would exceed national averages by only about 20 percent.

In a way, it doesn’t matter what these policy wonks say or what assumptions the consulting firm used. From the industry’s point of view, it’s the effect that matters, and the report’s effect may be to delay a bill, create doubt among wavering members of Congress, beef up the penalties on the Senate floor, or perhaps cause more discomfort among the public, already uneasy about reform.

For those closely studying the industry’s MO this year, it was obvious that its oh-so-agreeable public persona wasn’t the only arrow in its quiver. While the press continued to report things were different and that it really was kumbaya after all, the insurers were producing study after study released at crucial moments to bolster its position. Recall last spring’s Lewin Group study showing that if, under certain assumptions, Congress enacted a public plan to compete with private insurers, premiums for policyholders would be about 30 percent cheaper than similar private coverage—not something the industry relished. Lewin predicted that the industry would lose 32 million policyholders if a public plan were enacted.

While that study wasn’t funded by the industry, Lewin is a wholly-owned subsidiary of UnitedHealthGroup, the country’s biggest insurer. We on Campaign Desk said it was a good bet that Congress would take note of Lewin’s findings. Momentum against the public option began building soon after that. Its future in a final bill is still in doubt.

In August came a study attacking doctors for “runaway charges” for out-of-network health services. Congressional Quarterly noted “the report throws light on an issue that’s been little discussed in the many hours of chatter over the health care overhaul moving through Congress.” It appeared that the insurers were trying to illuminate the doctors’ role in perpetuating high medical costs. Doctors have escaped critical scrutiny so far because, as one HMO executive once told me: In America, the medicine man sits at the right hand of God. The press didn’t give this study much play.

Neither did it pay muchattention to another AHIP study, released in mid-September, demonstrating the advantages of Medicare Advantage plans. The study showed that Medicare Advantage plans provide better coordinated and more efficient care, even though providing those benefits costs the government about 14 percent more than the same benefits offered under the traditional Medicare. Opponents attacked that study, too, arguing that it singled out two states, California and Nevada, that have long histories of Medicare managed care. They say it was unfair to generalize from two states. The industry countered that’s where the data was. Bottom line: the future of Medicare Advantage plans is far from settled, and as with the Lewin report, it’s a good bet its findings have made their way to Congress.

The fate of the industry’s grand bargain is also not clear. It remains to be seen whether questions raised about the study’s validity will matter in the final backroom deal. The real question is not whether Pricewaterhouse used the right assumptions, but whether fixing a private insurance system without any tough cost control measures can do what it has to do and still allow every citizen to have affordable coverage. As we’ve said before, it’s hard to square the circle on this one. That is the real question the press should be asking.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman.