The Insurance Empire Strikes Back

The insurance industry lobby is attacking the Baucus Bill according to a breathless article by WaPo's Ceci Connelly, saying it will force insurance companies to add thousands of dollars in premiums per year for all Americans. TNR's Jon Cohn on the other hand smells a rat.

The 26-page paper, which you can read here, examines how four key elements of health reform will affect private premiums. The four elements are the absence of a strong individual mandate, the excise tax on high-cost insurance plans, the chain reaction effect of Medicare cuts, and taxes on various sectors in the health care industry.

But this accounting leaves out some pretty big things, starting with the subsidies that would help people buy insurance. The report itself makes that clear, right up front on page E-6:

The overall impact of these provisions will be to increase the cost of private health insurance coverage for individuals, families, and businesses. The net impact of these increases on households would include the impact of these increases and the new subsidies provided under the bill.

Now, the subsidies are not available to everybody, since they phase out with income and are only available through the insurance exchanges. As a result, people with higher incomes really would face higher premiums--if, again, the rest of the report is right. But there's more fishiness here, most clearly in the section about the excise tax on high-value insurance plans.

As you may recall, the idea of the excise tax is to end the tax subsidy for more expensive plans. The hope is that, once this subsidy is gone, employers and their employees will react by shopping around for cheaper plans--and that the resulting cost pressure will reduce health care spending overall, leading to lower prices down the line. Most economists seem to think this will be the case. So does the Congressional Budget Office, as best as I can tell. (They don't make pronouncements on how reform will affect private premiums, but they do believe it will lower health care spending overall.)

PriceWaterhouseCoopers acknowledges all of this. But they decide that, for the sake of illustration, they're going to pretend that the tax will have no effect except to raise prices. Once again, you don't have to take my word for it. The report says this explicitly, on page 6:

We have estimated the potential impact of the tax on premiums. Although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is applied.

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.

Cohn goes on to say that the insurance company is really complaining the most about lack of a solid, enforceable mandate for all Americans to have insurance, and that they don't want to be the bad guys here. It has merit, but I'm not buying it.

I say "too late." Why is the insurance industry attacking now? The public option. It was dead a month ago, they thought. Now? Now it's looking more and more likely that the Dems will muscle it through. That's got the insurance lobby scared, period. The insurance industry will never accept a public option, mandates or no mandates. Anyone who says otherwise is kidding themselves.

This isn't a move to try to negotiate. This is a move to try to destroy, plain and simple.

[UPDATE 8:58 AM] Doug J at Balloon Juice notes the WaPo article and makes this observation:

The article is by Ceci Connelly, who was at the center of the health care salon debacle.

There’s a pretty strong prima facie case for pay-to-play here.

Gotta agree. It's from the insurance company lobby, guys. It's going to say what they want it to say.

Common sense dictates it's not exactly bias-free, dig?