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A Return to Form for the Insurance Industry


TPMDC's Christina Bellantoni asked Kurt Bardella, spokesman for Rep. Darrell Issa (R-Calif.), about the insurance industry's attack on health-care reform. After making pretty clear that he basically agreed with the report, Bardella cautioned that "any Republican that uses the report should double-check to see how much money they've received from the industry, as that'll be a very easy rebuttal for Dems to hit back."

The politics of this report are quite strange. The insurance industry serves as the Democrats' preferred villain on health-care reform. Most Democrats feel about the insurers much the way FDR felt about the financial industry: "They are unanimous in their hate for me, and I welcome their hatred." In August, when the effort was at its nadir, the Obama administration actually attempted to rebrand the project "health insurance reform" to take advantage of public loathing of the insurance industry. This is an enemy Democrats aren't particularly concerned with having.

The insurance industry knows that, of course. That's partially why it's been the most helpful of all the stakeholders thus far: It has less leverage than the other groups. It is both the least popular and the least necessary. People like doctors, and no health-care system in the world runs without them. But people don't like private insurers, and plenty of systems function in their absence. With that in mind, they've tried to stick close to Obama, in the hopes that their cooperation would ensure their protection. They seem to be abandoning that stance now, and for what? The short-term impact of this seems to be that Nancy Pelosi's windfall profits tax on the insurance industry just got a whole lot more likely, as Democrats just got a whole lot angrier at a group they never liked in the first place.

The second question is whether other stakeholders will follow suit. If this report had come from the American Medical Association, for instance, health-care reform would be in a lot more trouble. This is a wake-up call to Democrats: There are no other numbers out there. No one has done an analysis of consumer premiums under the Finance bill, or any of the bills. The Congressional Budget Office looked at governmental spending, but that's not the most relevant measure for most voters. The insurance industry's analysis isn't credible, but the administration needs to get some credible numbers, or some numbers they can call credible, out there quick. The nightmare scenario is that someone more legitimate than the insurers, but still opposed to reform, beats them to it.

Photo credit: Andrew Harrer/Bloomberg.

By Ezra Klein  |  October 12, 2009; 1:07 PM ET
Categories:  Health Reform  
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Good post. But I hate the jump right over the policy and straight to the politics.

There's a void on the policy, as you note, that needs to be filled. I think it'd be fair for YOU to point out the challenges of pushing a policy of defanged mandates coupled with guaranteed issue and modified community rating. You made a big point during the Obama v. HRC debate about the importance of mandates-- specifically, the ability to free-ride, the sick disproportionately entering the system, etc. The impact you predicted was overstated at the time-- the system won't unravel, but the free-riders do make it more expensive for everyone else. In other words, with a plan that admittedly doesn't start saving any cost until the tail end towards 2019, but the impact of guaranteed issue/modified community rating starting immediately, its very likely that costs WILL be higher on terms of consumer premiums compared to the status quo. That doesn't mean the plan isn't good, but the numbers are the numbers. It'll be interesting to see if you actually address the policy specifics rather than just the politics.

You're a journalist first, a Democrat second. I hope.

Posted by: wisewon | October 12, 2009 1:20 PM | Report abuse

Ezra, circa Dec 2007:

"You have to do something to end the selection problems bedeviling the insurance system. On the insurer side, you impose community rating, which means they have to offer insurance to everyone, at the same price. But let's say you impose that without a mandate. What happens? Well, a whole lot of people reason that they don't need to buy insurance. After all, the second they do need insurance, they can purchase it, no penalty. The smart move in such a world is to avoid the system when well, only pay in when sick. This will, of course, destroy the system.

So you impose a mandate so everyone has to buy coverage. The insurers can't risk select applicants, the applicants can't game the system. Without the mandate, you can't reform the insurance system. And if you're not going to reform the insurance system and not going to achieve universal coverage, then why not focus on something else?

Maggie Mahar has much more. So does health care expert Len Nichols. It's worth noting that the need for universality -- either through an employer mandate, a government mandate, or an individual one -- wasn't a controversial point among liberals until Obama brought out a plan without a mandate of any sort. Indeed, his plan is, in some ways, the worst of both worlds: It eschews single payer and its close relatives for the more moderate, less expansive, less disruptive structural design that mandates were created to complete, but also doesn't have a mandate. So the mechanism for building on and reforming the system is broken, but he doesn't construct something new to replace it."

Posted by: wisewon | October 12, 2009 1:32 PM | Report abuse


"I have to run, but the short version is that you can't actually have this wonderful system everyone's talking about without full buy-in. The insurance industry really can't offer community rating -- which is to say, they can't offer health care coverage at flat rates, disregarding preexisting conditions and the like -- if individuals don't have to participate in the system. In that world, they really will get nailed by adverse selection, as healthier folks forego insurance and sicker types sign up in droves. Universality isn't just a nice moral decision, it's part of the bargain with the insurers -- and you can't force them into community rating without it."

Posted by: wisewon | October 12, 2009 1:35 PM | Report abuse

One more, for fun...

"the question with the individual mandate plans is not whether people sign up in advance, but whether they sign up after the plans kick in. Put differently, what an individual mandate does is levy a financial penalty on those who don't sign up for insurance. They do that because we expect people to not sign up for insurance. So the question is whether that penalty works -- whether it can be enforced, be politically sustained, and then function as a spur to push people into the coverage pool. If that doesn't work, then the Massachusetts plan won't work either. "

So overall, sounds to me like you have an opinion on the matter of weak mandates coupled with guaranteed issue and modified community rating... will you say it again in the context of the current debate?

Posted by: wisewon | October 12, 2009 2:11 PM | Report abuse

Obama has said that he is vested in getting this right. But let us face it - he can be one termer and still have his Nobel; means he is done for History and can still work all his life for some noble cause while keep on saying he wished Health Reform turned out to be good.

But what about many millions who are vested in the process? It will be unlikely that Democrats would ever get out of the shock and historical burden. Wonks like Ezra will have their credibility 'shredded' for their lifetime and nothing to talk about the true suffering which would continue to millions as well. If as what critics are pointing, costs do not get controlled; the competitiveness of this country will go to dogs too. With Dollar gone, trillions of dollars debt, multitude of unfinished wars and then uncured health care system - what hope are we talking there then in the United States of America?

Point is time has come to answer all core criticism about this reform, if any is left. Just to say something is better than status quo - that is easy rhetoric but we must be aware of consequences.

I do not want to join 'nay sayers' and I can be very called as 'going chicken'. Those brick brats are far more acceptable than we collectively taking the risk in this matter and doing hara-kiri.

We are in the last 'judgment' phase now.

Posted by: umesh409 | October 12, 2009 2:45 PM | Report abuse

You ask why insurers are coming out against the Senate finance bill? Simple, the Senate Finance bill is much worse than the status quo (for insurers) and insurers feel they have little influence to move the bill in a less onerous direction. What do they have to lose? The extreme weakening of the mandate and the industry fee (aka tax) are the last straw. The gov't takes 30% of the industry's profit and then tells people not to buy insurance until they're sick. Do you expect the insurers (or any other insudtry) to support something that takes such a large bite out of their profits?

This is also a test or trial run for other industries: will Obama cave? Will he and Dems demonize insurers even further? Does the insurers' change in attitude make passing a bill more difficult or easier?

Lastly, I understand the politics in calling it a "windfall profits tax" but let's not be ridiculous. Insurers margins are about 4%. Hardly a windfall. Funny how the patent derived windfall profits of bio-tech companies are never mentioned. Is it because those companies are haed-quartered in CA and MA??

Posted by: mbp3 | October 12, 2009 3:03 PM | Report abuse

Another point: you're right that people LIKE doctors and fancy new drugs, devices and procedures. You're also right that people don't like insurers. But there's a more subtle point to keep in mind - without a functioning private sector insurance market doctors, pharma, med tech companies, etc would be paid by a combination of the government and individual consumers.

Under this scenario doctors would be paid less. Pharma would make less profit....My point is that all other actors in the HC system have a vested interest in maintaining a robust employer sponsored insurance market free of government control. This market does not exist without the health insurance industry.

Posted by: mbp3 | October 12, 2009 3:10 PM | Report abuse

Destroying very large employers when the unemployment rate is nearly 10% would be bad for the administration.

People like insurers more than they like Congress.

Did it really just dawn on Congress to consider the impact of their awful ideas on consumers? Are you saying they haven't done any research to determine the impacts? Isn't this proof that politicians will always put politics first and consumers somewhare after free sporting events and extramarital affairs?

Companies bound by market forces have to put consumers first or they go out of business. Healthcare reform should focus on making health insurance companies and healthcare providers more consumer oriented. Clearly Congress is only interested in increasing its own power.

Posted by: fallsmeadjc | October 12, 2009 4:20 PM | Report abuse

People don't need insurance to pay for daily needs because they are affordable. Competition assures we can afford things or the purveyors couldn't sell them. For the current debate, insurance is a red herring. Insurance is expensive because health care in the US is not affordable. There is no magic. The rest of the developed world has cost-reduced health care to the point where in-the-aggregate it is affordable. We got into this mess over the course of years because our leaders failed. As it is a logical argument that we get the leadership we deserve, we now need to rise up and become better as a people. This is very simple, we fix this or we go down the path of decline like previous empires.

Posted by: BertEisenstein | October 12, 2009 4:47 PM | Report abuse

Can you imaging President Obama telling Wall Street, "I welcome your hatred?" Proof positive that the best days of the republic are behind us.

Posted by: bmull | October 13, 2009 3:24 AM | Report abuse

this should be a wake up call to re-strengthen the individual mandate. I'd welcome bringing it back to what it was and increasing the subsidies and i think while they'll not admit it insurers would too. given their druthers they'd rather have most all in the market as opposed to just the sick. Increase the tax to where it was and dont' leave the barely able to afford in a bad position by increasing the subsidy and you'll have something insurers can live with and while not jumping for joy they won't bash it like they are with this report.

Posted by: visionbrkr | October 13, 2009 8:08 AM | Report abuse

"Companies bound by market forces have to put consumers first or they go out of business."

hahahahahahahahahaha. Tell that to your beloved Dick Cheney.

Posted by: pseudonymousinnc | October 13, 2009 9:40 AM | Report abuse

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