HEALTH REFORM: The Gloves Are Off
The gloves are off in the fight for health reform, and the insurance industry has decided that it's time to start throwing analytically indefensible punches. Two recent cases in point: (1) the headline grabbing "report" entitled the "Potential Impact of Health Reform the Cost of Private Health Insurance Coverage," by PriceWaterhouseCoopers , for AHIP (the main health insurance industry trade group); and (2) the "Blue Perspective" entitled "Age Discounts ‘A Must' to Encourage Young Adults to Purchase Insurance," by the Blue Cross and Blue Shield Association.
Thankfully the Urban Institute, in work funded by the Robert Wood Johnson Foundation, has recently released a thorough and devastating rebuttal to the Blue claims. So my comments below focus mostly on the AHIP paper.
Consider the source. Most think tank work is funded by Foundations, which by law are nonpartisan. They focus more on objectively informing the public debate than on promulgating particular points of view. On the other hand, consulting firm work is often funded by an interested party with a major stake in the outcome of a policy debate. Readers should be very careful before repeating or reporting claims made by reports that were funded by people (or businesses) with a "dog in the hunt."
Consider the openness of the data and methods. Good policy research uses nationally and statistically representative data so that its conclusions reflect behavior of the actual population. The PriceWaterhouseCoopers report uses proprietary data which are not representative of anything. Just because you have lots of data does not mean it accurately reflects the population.
As a great example, the Urban team describes their methodology and their model in great detail, so that its work is subject to scientific standards of scrutiny and reproducibility. The same cannot be said for the report AHIP commissioned from PriceWaterhouseCoopers. The consulting firm neither allowed neutral parties to check its methods, nor did it send it out for review by neutral parties before releasing to the press. The timing of the release (the Sunday of Columbus Day weekend, two days before the Finance Committee vote) indicates this report was about influencing the vote, not increasing the amount of good information in the debate.
The report ignores the subsidies included in the Finance Committee bill. Eighty-five percent of people getting coverage from the new insurance marketplace are going to receive financial assistance to pay for it. The estimates ignore this. How can you claim to analyze premiums without taking into account subsidies to help people afford that coverage? Providing subsidies to make insurance affordable is one of the primary goals (and costs) of reform. This is a stunning omission on the part of PriceWaterhouseCoopers.
The report ignores the excise tax on high-cost plans. It says: "Although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is applied." You cannot purport to complete an economic analysis, and then ignore the behavioral effects of economic analysis! The claims that the excise tax will add to the cost of small and large group coverage should be ignored. The Congressional Budget Office (CBO) and most economists believe that the dual incentive for insurers to offer more value for dollar and consumers to choose less-expensive policies is one of the surest ways to slow the rate of health care cost growth.
The report assumes that all Medicare savings will be converted into private sector cost shifts. In other words, it assumes that all Medicare savings realized through the legislation would ultimately translate into reduced payments to providers, which will be shifted into higher prices for private payers. In fact, the biggest savings from the Medicare program in the legislation are realized from reducing the current formulaic overpayments to Medicare Advantage plans (a.k.a. private insurance plans), instead requiring them to bid competitively. Long-run changes to payment policy are really about creating incentives for higher-quality, efficient care -- not simply about paying providers less. In reality, many high-quality providers will make more under the proposed reforms. (This is why so many provider groups and coalitions like Health CEOs for Health Reform support smart reforms that realign incentives.)
The report assumes that premium growth in the absence of reform will be the same as per capita health care cost growth. They made this "assumption" even though premium growth has outpaced health care cost growth for the last 10 years. Ironically, this is primarily because some insurers have increased their market share, reducing competition in the marketplace. By underestimating expected growth in premiums, this baseline is biased against reform.
The report ignores the fact that under the Senate Finance bill, "If you like your coverage, you can keep it." The report overemphasizes the number of Americans who will have to "buy up" under reform. Not only does the Finance Committee bill allow existing plans to be "grandfathered," but it provides young adults with the option of purchasing a less-generous policy. When combined with provisions to allow young adults to stay on their parents insurance until they are 26, this will help keep costs down for young adults. Further, a vast majority of insured Americans now have plans that meet the actuarial value standards in the bill. The Finance Committee takes steps to stabilize premiums even further by providing a reinsurance fund for the transitional years in the new health insurance exchange.
The report conflicts with CBO's assessment of the individual mandate. There is a legitimate point, raised by insurers, about the individual mandate. If Congress reduces the penalties for remaining uninsured too much, it weakens the mandate. And that in turn impacts how the insurance markets -- predicated on the reform linchpin of guaranteed issue -- will function. However, the CBO has analyzed this question. It concluded the combination of subsidies and bidding incentives in the Finance bill does not hit the danger zone. Vigilance and further thought on this point is important, but this inflammatory report should not be taken seriously by lawmakers weighing the merits of comprehensive health reform.
The report everyone should be reading is the new paper by Linda Blumberg and colleagues at the Urban Institute. They found that limiting (or even eliminating) the amount premiums can vary based on age does not add to aggregate subsidy costs. The Urban report makes short shrift of the claim by the Blue Cross Blue Shield Association that markets cannot survive if insurers cannot vary premiums five-fold based on age (i.e. charge older people five times more than they charge younger people).
I have long defended the private insurance industry's ability to add value to a reformed and regulated insurance marketplace where they compete based on price, quality and customer satisfaction -- not on underwriting. I still believe this to be true. But we cannot solve a challenge as great as our health care crisis if we are not honest about the facts and the implications of reform. Aside from the obvious conflict of interest associated with a report funded by the very industry it analyzes, PriceWaterhouse's basic analytic assumptions -- by their own admission -- are at variance with the bill and the opinions of most analysts.