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The Insurance Industry's Deceptive Report


In the hallowed tradition of the tobacco and energy industries, the health insurance industry has commissioned a report (pdf) projecting doom and despair for those who seek to reform its business practices. The report was farmed out to the consultancy PricewaterhouseCoopers, which has something of a history with this sort of thing: In the early-'90s, the tobacco industry commissioned PWC to estimate the economic devastation that would result from a tax on tobacco. The report was later analyzed by the Arthur Andersen Economic Consulting group, which concluded that "the cumulative effect of PW’s methods … is to produce patently unreliable results." It's perhaps no surprise that the patently unreliable results were all in the tobacco industry's favor. He who pays the piper names the tune, and all that.

All that makes it a bit hard to respond to this analysis. Seriously engaging with its methodology probably gives it more credit than it deserves, making this seem like an argument between two opposing sides as opposed to a predictable industry hit job. But totally ignoring its claims means some of them might live unchallenged. So rather than a full tour through the "analysis," here are a couple of its more representative moments.

A footnote -- how come the good stuff is always in the footnotes? -- on page E-2 of the report sort of gives away the game. It reads: "Impact assumes payment of tax on high- value plans, full cost-shifting of cuts to public programs, and full passthrough of new industry taxes." That's written to obscure, but what it means is that the report assumes no behavioral changes in response to new policies.

To illustrate how this works, let's go back to another PWC favorite: tobacco taxes. Imagine Congress slaps a $10 tax on each cigarette purchased in the continental United States. The impact is obvious: People will virtually cease purchasing cigarettes, or the trade will move onto the black market. But a PWC report that "assumes payment of tax" would assume that cigarette purchasing remains unchanged, and smokers fork over $30 bazillion (approximately) in taxes. This would mark the beginning of a heretofore unknown phenomenon: nicotine bankruptcy.

At least, it would in the world of PWC's report. But it wouldn't do so in the real world. So too with these assumptions. Economists think that the tax on high-cost health-care plans will lead employers and consumers to demand cheaper plans that do more to control costs. In fact, PWC expects that, too. They just don't build it into their estimate. On Page 6, they say, "Although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is employed." That's a bit like saying although I expect to eat doughnuts this morning, I will instruct my scale to act as if I had abstained.

Or take the assumption of "full cost-shifting of cuts to public programs." What that means, essentially, is that health-care spending is considered a constant, and every dollar that a public program cuts from its payments to hospitals is a dollar the private health-care industry has to add to its reimbursements to hospitals. Have you ever heard of that before, in any industry? If Blockbuster decides to cut costs to consumers by negotiating lower payments to movie studios, does Netflix send out a sorrowful e-mail explaining that it will have to increase its membership fee because it now needs to make higher payments to movie studios?

Another interesting bit comes on Page 2, which identifies "new minimum benefit requirements that may require people to buy coverage that is more expensive than options to which they currently have access" as one of the "root causes" of coming premium increases. In the footnote, the report complains that the Senate Finance plan requires a minimum 65 percent actuarial value (that is to say, 65 percent of what an individual is expected to need), while the Massachusetts plan only requires a 56 percent actuarial value. Other states have no minimum value. Insurers will also be forced to cover preexisting conditions, have an out-of-pocket limit, and end rescissions.

It's true, as the report says, that buying better insurance will cost somewhat more than buying insurance that doesn't cover anything. The vast majority of the people affected by this will be using subsidies, of course, but put that aside for a moment. This is part of the point of health-care reform: Insurers will no longer have the freedom to offer products that let an individual think his family his protected when the policy will do nothing of the sort. That may raise prices, in much the way that antibiotics cost more than herbal supplements, but it raises prices because it reduces the insurance industry's ability to sell a deceptive and insufficient product.

But if the PWC's report doesn't offer much in the way of trustworthy policy analysis, it is an interesting looking at the changing politics of the issue. In short, the insurance industry is getting scared. After many months of quiet constructiveness, they're launching a broadside on the week of the Senate Finance Committee's vote. The White House, which had a pleasant meeting with the industry's leadership last week, was shocked by the report, and so too was the Senate Finance Committee. The era of cooperation seems to be over, and they weren't given much advance warning. But the report might have another impact, too: The evident anger and fear of the insurance industry might do a bit to reassure liberals that this plan is worth supporting, after all.

Photo credit: Justin Sullivan/Getty Images.

By Ezra Klein  |  October 12, 2009; 10:43 AM ET
Categories:  Health Reform  
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Next: What 'The Naked Chef' Jamie Oliver Gets Wrong


Nothing about Ceci Connelly?

Posted by: BrienJackson | October 12, 2009 10:50 AM | Report abuse

Conspiracy alert: Is the connection between the insurance and tobacco industries just the former searching for the best trained strategic communicators/liars, or is the tobacco industry worried that if the taxpayers assume a greater share of health care costs, they will become more amenable to higher tobacco taxes to save them the health care costs associated with tobacco use?

Posted by: hackett1 | October 12, 2009 10:58 AM | Report abuse

please don't throw me in the briar patch!!!

Posted by: evangeline135 | October 12, 2009 10:59 AM | Report abuse

Thank you Erza!

Ceci Connelly is reporting on this garbage like it's the truth.

Posted by: hillery23 | October 12, 2009 11:00 AM | Report abuse

I can indulge myself just a moment of pleasant fantasy: wouldn't it be nice if this would infuriate the Democrats in Congress sufficiently to give the health insurance company what it truly deserves -- a bill that's one heck of a lot tougher on them?

I know, I know... a pleasant fantasy...

Posted by: bcamarda2 | October 12, 2009 11:08 AM | Report abuse

I'd like to add a bit of a clarification to actuarial value. Actuaries will make some assumptions about a standard population's expected healthcare usage and costs and run them through an insurance plan. An AV of 65% means that the population will have an average of 65% of its costs covered by the insurance.

First, depending on the terms in the insurance contract, some folks will have more covered and some will have less covered. For example, if you have a medical condition for which there are many effective generic drugs, you can expect to pay a bit less than 35% out of pocket. If you have a rare disease which requires a rare, expensive drug, you'd probably have less than 65% of your expenses covered (not to mention your expenses would be higher). Today, insurance contracts vary very significantly in what services they exclude, so there would be a pretty wide variation in how much of your expenses would be covered by your plan depending on precisely what condition you get. That variation would come down after health reform - and that's a good thing.

Second, an AV of 65% is really pretty low. I think that the average employer-sponsored plan has an AV of 85% or more. That's what we should be aiming at eventually. Of course, as you point out, there is no minimum AV in most states (probably all but Massachusetts).

Posted by: weiwentg | October 12, 2009 11:14 AM | Report abuse

"The era of cooperation seems to be over, and they weren't given much advance warning..."

Except that anyone with half a brain knew that once things moved from the theoretical to the actual this is exactly what would happen. It's the era of kidding ourselves that seems to be over.

Posted by: adagio847 | October 12, 2009 11:26 AM | Report abuse

"it is an interesting looking at the changing politics of the issue. "

Agreed. I think the point is the insurance industry no longer thinks there is a cost to fighting against reform. The question is why?

1) Politicians have scapegoated insurance companies during this reform battle already. When you read the criticisms of the PWC report, they really are no different than what you read last week about the insurance industry.

2) As I've noted in the past, there was a limit on how much the insurance industry was going to compromise on mandates in exchange for their support, and it seems we've reached the breaking point. Specifically, mandate penalties have already been watered down to $800, and that doesn't even consider the large percentage of the population exempt from them altogether due to affordability provisions. Meaning, its debatable whether there really is a "mandate" in place, and the "new business" that the insurance companies were getting in order to support other reforms, are increasingly in question. Ditto for the AHA, by the way.

3) Being a loyal soldier hasn't prevented the public option from moving forward as much as feasible. This is obviously their breaking point, and their support/staying on the sidelines hasn't earned them much chance of preventing this from happening.

Altogether, there isn't much cost to AHIP from pushing against reform at this point. What will be interesting is if other industries, as details become clearer and compromises are made at their expense, similarly start voicing opposition to reform. The AHA seems headed in that direction, the AMA's support is likely contingent on $200 billion in spend that wasn't part of the Finance Committee bill, and the infamous White House-PhRMA agreement is under attack.

It'll be interesting to see things continue to play out.

Posted by: wisewon | October 12, 2009 11:31 AM | Report abuse

PS It'd be good to see you take a stand on the macro-level merits of the argument.

There are very plausible reasons for thinking that premiums will raise faster for people with private insurance between now and 2019 than would otherwise be the case.

Posted by: wisewon | October 12, 2009 11:33 AM | Report abuse

I just saw some recent photos of Gibbs and Axelrod. We need to have a "tough democratic discussion" (to use the odious phrase the administration applied to healthcare for the elderly) with those two. THey are both obviously overweight, and why should my tax dollars go to pay for the ensuing health issues (diabetes, high blood pressure, they are causing themselves by this excessive eating? This said in the collectivist spirit mandated by the new legislation, in which what was formerly one's own business will now be the business of everyone in the country.

Posted by: truck1 | October 12, 2009 11:38 AM | Report abuse


I agree with all your analysis, although I do agree with AHIP, as does our dear friend Jonathan Cohn, that the individual mandate penalty needs to be strengthened to at least what we have here in MA in order not to penalize Joe and Jane Q. policyholder with higher premiums because Hank Healthy and Yani Young were unwilling to subsize part of Joe and Jane Q. policyholder's premiums.

Posted by: BradGabel2002 | October 12, 2009 11:43 AM | Report abuse

Did Arthur Anderson Consulting criticize PWC's report in the 1990's while they were helping Enron cook their books? I can't believe such a reputable company would try to criticize one of their cheif competitors.

If the PWC study is biased because it was commisioned by the insurance industry then aren't all of the studies commisioned by pro-reform groups similarly biased?

You should focus on cooking columns.

Posted by: fallsmeadjc | October 12, 2009 11:47 AM | Report abuse

65% is low but I wonder if they're setting it low to cover the 'young invincible' policies some places have been piloting without going quite as low as Massachusetts which flirts with catastrophic coverage.

And I'm sort of surprised by this PWC stuff. They used to put out some very good healthcare IT reports; though perhaps those ended with Dr. Braithwaite's departure.

Posted by: ThomasEN | October 12, 2009 11:51 AM | Report abuse

Also Ezra,

65 percent actuarial value is still a number so bad that it will cause political backlash. Hewitt estimates a 70 percent actuarial value to have a $2,000 indiv./$4,000 family deductible, 20% co-pay, and $4,000 indiv./$8,000 family out-of-pocket cap. There's no way that requiring a family of four earning $80,000 to pay 11-12 percent of their income for this kind of policy, which is what the House bills will do), won't spark political backlash.

I think the HELP's 76 percent figure is what is necessary. The minimum actuarial value figure needs to be at least 75 percent not to spark political backlash.

Posted by: BradGabel2002 | October 12, 2009 11:52 AM | Report abuse

Ezra, are you aware that Bob Laszewski (the David Broder of health policy analysis) is treating the PWC report as close to gospel truth?

Can we have a health policy battle??

Posted by: consid24 | October 12, 2009 11:58 AM | Report abuse

Commentator 'wisewon' is right. No matter how much blue White House gets in the face, if Insurance Industry feels their backs are to the wall; they are going to start these games.

One gets the impression, Obama shut them up early in the inning to deal with other opponents. But Insurance Industry can make up for this lost time by striking at a 'critical time' when bills are heading to Conference. No matter how lousy PWC report, it is incumbent upon White House (and likes of Ezra too) to do the thorough 'hit man job' on it. That is the risk which cannot be allowed. Because if people see how this reaction / report of the Insurance Industry is shredded; other industries will not dare to come in between.

One naive question here - why is that Insurance Industry never asked for 'pay for results' for Doctors and Hospitals? Why is there no business incentive for them for going away from the prevailing 'pay for service' model? I agree, for now it is way to late to open the Wyden types of Bills. But just curious how insurance industry could not tip the balance for 'pay for results' model.

Posted by: umesh409 | October 12, 2009 11:59 AM | Report abuse

If only they could close down opposition media outlets like they do in Venezuala. Didn't Axelrod's "talk" with Fox News have any impact. Why didn't they take his threats seriously? The Government should fight for the People's voice.

Posted by: fallsmeadjc | October 12, 2009 12:13 PM | Report abuse

The Democrat's incompetence has made bipartisanship impossible. There is no point in bargaining with people that can't grasp basic economic logic. It's like trying to build a bridge with a two year old.

Posted by: fallsmeadjc | October 12, 2009 12:17 PM | Report abuse

What bradGabel said: Ezra, some things are very simple (although plenty hard to calculate). Whatever we do with health insurance reform is meaningless without an actuarial standard. That standard should start at the HELP bill's standard of 76% and ratchet up over 10 years.

Insurance companies do no, repeat do not, get to take our lives into our hands and get to keep 1/3 of of the money for themselves.

Until health reform contains a path to a loss ratio of 90%, it will fail.

Posted by: Dollared | October 12, 2009 12:21 PM | Report abuse


The Insurance Industry is just telling us what we already know. They will continue to raise prices even if they get more mandated subsidized customers.

Nothing in the Baucus Bill prevents the Insurance Industry from raising prices. They will pass any taxes on to the consumer.

When they can no longer rescind or refuse coverage for pre-existing conditions or cap the amount of coverage in a year or lifetime, they will raise prices and continue taking 25-35% of everyone's premiums to pay for exhorbitant salaries, advertising, attorneys to fight for higher prices, public relations firms, campaign contributions and millions more for lobbyists, while claiming only 3% profit.

Nothing will stop them except:

1. A National Exchange including a Public Option that everyone has the opportunity to buy into.

2. Changing their anti-trust status that has created a monopoly for the Insurance Industry. It is not capitalism by any stretch of the imagination.

The Blue Dogs in Congress and the President have sold out to the Inusrance Industry and it's appalling! I'm still "hoping" they will to do what's right and ethical but it's doubtful. After listening to the President on Saturday I'm completely disgusted with his position that the "debate" is finished on both sides, and would be laughable if it wasn't so tragic for the Amercian people.

No one is addressing costs to the consumer. Not only will Insurance premiums continue to rise, but the 81 billion that they claim lowers % of GDP will be paid directly from middle and lower income citizens subsidizing the Insurance Industry.

Posted by: CindyLugo | October 12, 2009 12:44 PM | Report abuse

Everyone knows that people respond to incentives. What this report presupposes is... maybe they don't?

Posted by: you-dont | October 12, 2009 12:46 PM | Report abuse

Your first two paragraphs are shameless: it attacks the report by innuendo that borders on guilt by assocation. Why start your blog by talking about the tobacco industry? Another total cheap shot: "seriously engaging with its methodlogy gives it more credit than it deserves." Give me a break -- this coming from an ideological P.R. ally of the Left.
The study focuses on four key provisions of the Senate Finance bill, each of which any economist/actuary will verify that it increases premiums. (1) Lack of individual mandate that is enforced through real penalities coupled with compressed rating bands. Why does this increase premims -- the young and healthy won't purchase leaving an adversely selected risk pool. That is insurance 101. (2) $120 billion of excise taxes (non deductible) on insurers, device and phrma industry -- even CBO says that this will increase premiums by 1 percent. But now CBO has said in a letter that it read the provision incorrectly because they original thought the tax was deductible which it isn't. Just for tax on insurers, this paper estimates it at 2.5% for insured plans. (3) Excise Tax on "Cadillac Plans." According to CBO this raises about 200 billion over 7 years. It will be paid for by penalities or increased taxes on individuals in a highly regessive manner that is very detrimental to labor union plans. By 2019 according to the report , at least one of the mandated plans will be considered a "Cadillac plan" and subject to the 40 percent tax in 24 of 50 states. In some high cost metropolitan areas, the LOWERST OPTION PLAN (BRONZE) WOULD BE CONSIDERED A CADLLIAC PLAN BY 2016. So I guess this $200 billion is coming out of someone's hide. (4) Cost Shift: There are dozens of studies done through the years which demonstrate cost shift when medicare rates are cut. Neverthesless, this a relatively small contributionto premium increases (.8%)

You put all these factor together and you will get signifcantly increaes -- particularly in the individual and small group market in the connector.

Posted by: hcohen3 | October 12, 2009 12:54 PM | Report abuse

Oh, yeah, the insurance industry lies. Everyone knows that when you suddenly accept sick people's pre-existing conditions that insurance premiums will go down! Haha! The left has to argue that rates will drop AFTER you suddenly take all comers and allow people to buy coverage after they get sick.

Here's a message for the left: My wife and I are retired, in our 50's without coverage, with about a $60,000 income. Under the Baucus plan, we will be exempt from being charged penalties for not buying coverage (penalties are dropped if the cost of your coverage exceeds 8% of income). Under no situation will people in their late 50s be able to buy the Cadillac government plan for $4,800 per year. We have no intention of buying coverage until we know big health bills are coming. As soon as we receive care, we'll drop the coverage we bought like a hot potato. And yet, somehow we're to believe that premiums won't go up when people game the system like my wife and I plan to? Are liberals nuts?

Posted by: BillCarson2 | October 12, 2009 1:03 PM | Report abuse

Ezra, your Blockbuster analogy isn't the same thing as government cost-shifting.
This is how to look at Medicaid and Medicare if they applied to movie rentals:

Say Blockbuster charges $10/month for a movie rental plan. Then the government decides that too many people can't afford movie rentals at that price. This leads to the creation of MovieAid.
Under MovieAid, the poorest quarter of Americans are given a free rental plan. The government gives only $5/month to Blockbuster for each individual in MovieAid.
In response, Blockbuster now must charge $11.67/month for the same rental plan in order to preserve the same revenue.
Tragically, a new group of Americans - those too rich to get MovieAid and too poor to pay $11.67/month - can't afford to rent any movies. :(

Posted by: pracpol | October 12, 2009 1:41 PM | Report abuse

I recognize that you, Ezra, cannot be seen as destroying the integrity of the 'beat reporter' on healthcare for WaPo.

But, for your readers, if you want to see what 'beat reporting' offers in the way of (non)analysis, check out Ceci Connolly's rewrite of the AHIP press release and the very few anti-PWC report quotes from Congress and the administration:

Cut and paste, phone some folks, put whipped cream on the excrement, and then you have WaPo 'news' reporting.

Ezra, I'd worry about whether you will be guilty by association of asinine reporting by Ceci et. al. Did AHIP take her to dinner once or a dozen times? Is her bf working for Blue Cross/Shield as a PR guy?

Posted by: JimPortlandOR | October 12, 2009 1:51 PM | Report abuse

This PWC report is the best argument yet for a public option. Never mind that polls show that most Americans want a public option. Never mind the links of Baucus and other politicians to the insurance industry. Just read the report.

The insurance industry is already laying the groundwork for raising insurance premiums. It is a shell game at its best. The Baucus bill will put the fox in charge of the hen house, and the report shows exactly what we can expect as a result.

Seems to me the intelligent thing to do is to chuck the Baucus Bill and put together a strong public option. Leave them with their system of screening for preexisting conditions, denying and delaying claims, outsourcing telephone banks and claim processing to India, skimming 10-15% off our health care dollars for their profits, and regularly raising premiums to employers and families. That's what they will do anyway. And the time and expense of trying to get this industry to change will not be worth it.

By the admission of this industry via this PWC report, it is futile to try to deal with them just as it is futile to try to get Republican support.

Pass the Baucus bill and we will deserve exactly what this report predicts.

Leave them to their Darwinistic, capitalistic ideology where human lives are valued below corporate profits. Just give me a strong public option. Let the private insurance industry then die a natural death and go the way of the dinosaurs. Seems to me this report is begging us to do just that.

Posted by: sarawaters | October 12, 2009 1:52 PM | Report abuse

It''s as if the case for the public option was based, in part, on private insurers being a bunch of bad actors with a long history of acting in bad faith.


The insurers want to pass the buck for being set upon squeezing every spare cent out of Americans' wallets. And Ceci Connolly's the elephant in the room here.

Posted by: pseudonymousinnc | October 12, 2009 2:17 PM | Report abuse

Mr Klein, your background of having worked in the private sector precisely ... never ... shall we say it discredits you?

Unfortunately, your employer sees fit to unleash you as a Dear Sally on questions about the world's largest auditor, despite the fact you've never dealt with PwC or had a job other than as a 'pundit.' So while most people who work may understand that PwC is a very big audit firm, for you, it is a conspiracy machine, the stuff anti-WTO dreams are made of. But sadly, a 24-year-old talking head with a degree from UC-Santa Cruz in punditology and might as well have won the Post's ongoing competition to be America's Next Great Pundit is educating the masses in Corporate Identification 101. Well, guess what, Mr Klein: Sometimes, a profit-making enterprise actually ISN'T evil. Sometimes, it creates more jobs and wealth than your conspiracy theories ever will. Imagine that.

What's much more important is that PwC's conclusions are pretty obvious to anyone. If you legislate that you can't charge higher premiums for older/sicker people, and that the fee for not having mandatory insurance is $970, it's pretty clear that it's cheaper not to have insurance than to have it (who pays less than $970 per annum?). So why have insurance unless you get sick, if once you're sick it's the same price as it would be otherwise? The result is that you have fewer healthy people, and more sick people, buying insurance as a share of the overall pool. With more risks and fewer places to spread it, costs will inevitably go up. This has happened in MA, where cost inflation has been massive since these reforms were undertaken -- and today it's the most expensive place in the country to buy healthcare. Of course, maybe people think the trade-off is worth, it, but it makes sense to know going in that this legislation will jack up premiums ... and that more than half of its funding comes from cuts to Medicare "fraud and waste." Since Congress has abstained from the Medicare fee cuts it's supposed to make every year, I don't know where they'll find the will (or the waste) to cut $500 billion or $600 billion. Mr Klein, you seem to want Americans to be blind to the consequences and risks going in, merely because it suits your agenda. Sounds a bit Rumsfeldian, no?

Alas, the media seems with Barack Obama's election to have shrugged off its duties as the Fourth Estate in place of playing Tiger Beat to Obama's Brad Renfro. Job well done.

Posted by: commonsense110 | October 12, 2009 2:54 PM | Report abuse

Interesting. So now Ezra wants to account for behavioral changes in response to new policies? Hey about those Baucus "savings" that are based on the assumption that doctors will go on doing what they do, taking a 25% cut in reimbursement? No early retirement, no physician bankruptcies, no lobbying Congress to change its mind on the cuts...

Posted by: rightklik | October 12, 2009 3:15 PM | Report abuse

But Ezra, I buy insurance as insurance--not as an expensive means to finance routine preventive care, or other health expenses less than about 2% of my income. The plan you espouse will make me pay in $1.25 to get back $1 to pay the things I now pay out of pocket. Any moron can see that the cost of my new "insurance plus financing of little expenses" will cost more and waste money. I buy all the insurance I need, and none that I don't need--a philosophy that will be illegal under the plan you espouse.

Posted by: mark31 | October 12, 2009 3:41 PM | Report abuse

Shorter "commonsense10": blahblahguffadhomblah.

(And for what it's worth, I have lots of friends at PwC.)

Would our latest dunce take an extra million paper-pushing jobs in healthcare in exchange for another ten million uninsured? Apparently so.

Posted by: pseudonymousinnc | October 12, 2009 3:53 PM | Report abuse

SO LET ME GET THIS STRAIGHT. Pricewaterhousecoopers, one of the TOP 5 audit firms in the WORLD cannot be trusted because the study was commissioned by the Insurance companies. Hmm, Hmm, Hmm. But the same DEMOCRATS and Democratic consultants who promised they would keep unemployment under 8% if we supported them in passing a $787,000,000,0000 Stimulus Bill, which Obama had to have in 24 hours or the world as we know it was going to explode, are to be believed again when they tell us - "trust us, Insurance Reform won't hurt a bit'.


I wish Obama and the Dems would just be honest. The American people are compassionate and could be willing to sacrifice so that all Americans can be covered. By continuing to obfuscate with generalities and vague language Obama and the Dems show they are willing to deceive the public about the real pain their plans will inflict on the 80% of us with decent health insurance. Rather than honestly appealing to American generous nature, they (Obama and the Dems) are lying through their teeth to get this passed.

I only hope that should a bill, based on the flawed approaches of the what is coming out of the House and Senate, actually pass – the American voters hold every member of Congress accountable for their deception and lies when it becomes evident.

Posted by: pmg251 | October 12, 2009 4:10 PM | Report abuse

What fun we're having. Everyone on the left, including the Obama administration, is attacking the motives and source behind the analysis, but nobody is actually saying their numbers are wrong. That the current Senate Finance bill won't cost families $4000.00 more per year. I'm skeptical of a report issued by the insurance industry, but if I have to choose between their analysis and the Democrats pie in the sky...Obamacare won't cost a penny and will allow us to pay off the national debt garbage I know which one is more based on reality. If the Democrats force Obamacare down our throats what we do know is that it will cost trillions and we eventually have to be taxed until our eyeballs bleed to pay for it. We also know you can't cut $500 billion in so called fraud and waste from medicare without drastically hurting medicare and the elderly. And the Democrats know all this which is why they are so desperate to get Obamacare passed before it can really be analyzed!

Posted by: valwayne | October 12, 2009 4:13 PM | Report abuse

valwayne et al --

No problem, I will certainly say that the numbers are wrong.

Among other things, they make the assumption that insurance companies are helpless babies in dealing with providers and hospitals. Their scenario is: hospital: "we lost some of our payments from Medicare this year. You have to give us more money right now. We mean it." Big Insurance Company: "Yes sir, right away sir. How much would you like? And would you like fries with that?"

In reality, it is obviously true that if people now excluded from health care start getting health care, in the 10's of millions, more money will be spent on health care than if they continue to not get care until they present in critical condition at the ER. It is obviously true that in order to prevent reformed health care from breaking the bank, steps to control health care spending by eliminating waste, fraud, negligence, and so on will be necessary. It is equally obvious that private insurers, having taking a long break from that process after the managed care debacle of the 90's, are going to have to get involved again, and start requiring elimination of waste, fraud, negligence, and so on, as will public payers.

Unfortunately, the option of not providing health care reform doesn't help this much. If we let this go on exactly as is, waste, fraud, negligence, and so on will break the bank in exactly the same way, except we will have the added pleasure of enjoying the sight of ER's and intensive cares filled with people near death from health care neglect, but still passing large costs through to people paying for health care.

We are just lucky that we have so much waste, fraud, negligence, and so on in our health care system, so we can save so much money before we ever get to the level of real effective health care that we can pay for whatever care any American needs and still reduce, not increase, costs once the process begins to be applied. Of course the pharmaceutical industry, the equipment suppliers, specialty groups, and overbuilt hospitals are undoubtedly on their way to Price - Waterhouse right now to commission studies to show that cutting use of their products and services or requiring rational and ethical standards will bankrupt America, since one person's waste, fraud, negligence and so on is another person's new beach house.

Posted by: PatS2 | October 12, 2009 4:39 PM | Report abuse

The health insurance companies brazen threat to spike insurance costs unless they get what they want out of health care reform should be the final nail in the coffin of the argument against the necessity for a robust public option.

Posted by: ram9478 | October 12, 2009 5:03 PM | Report abuse

Interestingly and also predictably, this health insurance industry report did not include a forecast on how much insurance premiums will rise between now and 2013. Yet rise they will. I do not believe it would surprise anyone if annual health insurance premiums rise by a minimum of $1500 between now and 2013.

Nor did this report attempt to analyze and project the potential impact on the price of health insurance premiums if corporations, small businesses, and people with employer-sponsored insurance were to have the opportunity to comparison-shop for the best insurance deals across state lines in 2013.

And of course, it did not address the potential price impact of a public option on private health insurance premiums. The private health insurance industry does not want to go anywhere near there.

In coming out so directly to fight legislation it has already much more than less "help" shape to match its best interest, the private health insurance industry has over-played its hand.

This industry has made a critical strategic mistake by unnecessarily providing the impetus for the American Public to demand the inclusion of a public option and public choice.

Posted by: csfoster2000 | October 12, 2009 5:19 PM | Report abuse

ram9478 & csfoster2000,
You are dreaming if you think a PUBLIC OPTION will save us. The PUBLIC option will drags us under just like it is dragging Canada, France and the UK under. WAKE UP. Heaven forbid you or your spouse or child gets cancer or a rare disease in a country with a public option because that’s where their health care system fails. Socialized medicine works great for broken bones and routine illnesses, but no so good for major illnesses.

If you love Socialism and socialized medicine so much why not move to Canada or the UK, or maybe to Cuba or Venezuela. Please I mean no offense. But why do you insist on making the US a Socialist country. Our system of private enterprise and free markets has made us a wealthy and prosperous nation where innovation and creativity are rewarded. Yes we need reform and we need sensible regulations. But we also need sensible tort reform to stop lotto lawsuits and real competition with the ability to buy health insurance from any company in any state. We do not need the GOVERNMENT OPTION. Think about it. Medicare is going broke having far exceed the widest cost estimates of its original proponents. But Medicare is the US Taxpayers. Do you really think another GOVERNMENT RUN health care system would do anything other than bankrupt the country? Is that what you want?

Posted by: pmg251 | October 12, 2009 6:01 PM | Report abuse

Yep, it's a last ditch effort by the scaremongers...

Posted by: Lee_A_Arnold | October 12, 2009 6:38 PM | Report abuse

If you would like to help pressure Congress to pass single payer health care please join our voting bloc at:

Posted by: letsgobuffalo | October 12, 2009 7:00 PM | Report abuse

pracpol -- Klein made the exact same mistake five days ago in a post titled "The Question of Cost-Shifting", except instead of Blockbuster, Netflix, and movies, he used CVS, Wal*Mart, and razors. His error was pointed out then, but Klein either doesn't read the comments under his blatherings (might be smart, that), or he doesn't care to be seen as serially wrong.

Posted by: msoja | October 12, 2009 7:43 PM | Report abuse

pracpol: "In response, Blockbuster now must charge $11.67/month for the same rental plan in order to preserve the same revenue."

Or...Blockbuster can streamline its tremendously inefficient administration costs which eat up from 15-30 cents of every rental dollar.

Or...Blockbuster will have to sacrifice some of its profits, which have been unjustifiably generated in part because it faces no serious competition in most markets.

And there are probably other serious responses that others can come up with.

Posted by: dasimon | October 12, 2009 7:55 PM | Report abuse

--"[T]he insurance industry is getting scared."--

You bet they are, Klein, and so should everyone else be.

I think Price Waterhouse's estimates are probably quite conservative.

Concerning the aforementioned report, elsewhere on the collectivist side of the blogosphere the genius Jonathan Chait linked to that other mental giant Jonathan Cohn who said, "But the best available data we have, from government surveys and the Kaiser Family Foundation, suggest that average premiums exceed the national average by, at most, around 20 percent. The idea that the variation would somehow explode up to 100 percent, during a period in which reform will likely reduce national variation, is pretty hard to swallow." Boy, is he smart. Except if you look at Romneycare and the Massachusetts Miracle you find, Surprise, Surprise, Surprise, "Since 2006, total state health care spending has increased by 28 percent. Insurance premiums have increased by 8–10 percent per year, nearly double the national average."

"double". As in, like, man, 100%. Someone tell Cohen. I don't feel like registering with TNR. It creeps me out. Don't worry about Chait. Nothing will penetrate that guy's genius.

Posted by: msoja | October 12, 2009 9:05 PM | Report abuse

dasimon -- Why hasn't Blockbuster already addressed those alleged inefficiencies? Were it practical to do so, you'd think someone would have done it.

And, yes, Blockbuster, or any business, could accept lower profits, especially, I suppose, when FORCED to by government, but that's sort of antithetical to the idea of freedom, isn't it? Or if you want to consider it strictly economically: What if the resultant rate of return is lower than investors or franchise holders are willing to accept for their capital and/or work?

And who are you to say anyone's profits are "unjustified", anyway? Do you worry if Klein is overpaid? Why not?

Posted by: msoja | October 12, 2009 9:14 PM | Report abuse

Just a couple of side points. When people scream about government beuarocrats taking over, how is that different from insurance beuarocrats who already make life and death decissions. Also as someone with a pre-existing condition, epilepsy, I can tell you I can't get insurance so everything is out of my pocket.

Posted by: malaparte | October 12, 2009 11:00 PM | Report abuse


Blockbuster now has to compete with the new public option "Netflix" and fails miserably and has to modify its business plan to compete with a new program that is insanely more efficient at providing the same product to the customer.

case in point:

Netflix stock/value+++
Blockbuster---- (even with an attempt to modernize the rental process and catch up to the public's option)

The argument where the general public is forced to cover the $11.67 fee assumes that they will still chose the antiquated service.

Posted by: bean_dipp | October 12, 2009 11:33 PM | Report abuse

--"how is that different"--

Aetna can't throw you in jail if you don't want to buy its product.

Will you favor throwing me in jail if I refuse to pay for treating your epilepsy?

Posted by: msoja | October 12, 2009 11:40 PM | Report abuse

--"forced to cover the $11.67 fee assumes"--

And you assume movie makers can afford to sell their wares for $5, not make any money or lose money, and make more movies next year.

You can't suspend the laws of economics. You'll drive everyone into the ground, just like the commies did in the old Soviet Union.

Posted by: msoja | October 12, 2009 11:45 PM | Report abuse

msjoa: "And who are you to say anyone's profits are "unjustified", anyway?"

"Unjustified" because they were not facing any serious competition; I don't consider monopoly (or bi-opoly) pricing power to result in truly "earned" profits because it wasn't done in a competitive marketplace. Also, the lack of real competition may explain why there may be little incentive to do away with administrative inefficiencies.

"Blockbuster, or any business, could accept lower profits, especially, I suppose, when FORCED to by government, but that's sort of antithetical to the idea of freedom, isn't it?"

Look, I'm usually a big fan of free markets. But I'm not going to ignore what I think is compelling evidence that the market doesn't work in certain situations. When other nations of similar economic status get similar results for far less money, I'd say that's compelling evidence that "freedom" doesn't put incentives in the right places for good health outcomes. All the talk about "markets" and "freedom" is very nice, but we don't like markets just because they're markets; we like them for the results they usually get. And when they don't get those results, I see no reason to try something else that may do better for less. To do otherwise is to engage in a kind of market fetish.

Oh, another possible resolution: some renters are renting more films than they can possibly see, and will stop doing so. Yes, that will cut into Blockbuster's profits, but people will have more money to spend on other, more productive stuff.

Posted by: dasimon | October 12, 2009 11:53 PM | Report abuse

from pracpol: "The government gives only $5/month to Blockbuster for each individual in MovieAid.
In response, Blockbuster now must charge $11.67/month for the same rental plan in order to preserve the same revenue."

Yet one other possible outcome: Who said Blockbuster is required to rent to anyone who asks, even at a loss? Doctors aren't forced to take Medicare patients. If the rental subsidy isn't sufficient, then adequate service won't be there and the program will fail. And it doesn't matter whether it's a doctor or a movie rental.

Posted by: dasimon | October 13, 2009 12:00 AM | Report abuse

--"I'm usually a big fan of free markets."--

No, you're not. If you were, you'd know that there's nothing wrong with monopolies (if you could even manage to find one as an example.) Period.

Posted by: msoja | October 13, 2009 12:35 AM | Report abuse

If you really believe what you wrote above, Ezra, you're understanding of health insurance is less than I gave you credit for. Any critique which involves comparing health care to tobacco and impugning thhe credibility a Big Four accounting firm needs to be tossed in the appropriate receptacle.

Posted by: bmull | October 13, 2009 2:24 AM | Report abuse

dasimon and msoja-
Thanks for continuing the conversation.
This is how I look at it. If a hospital provides a service for $10, there is a reason why it picks $10 (whether it is a good or bad reason, I can't say, probably varies).
When the government forces the hospital to accept $5 for that service, it responds by increasing the price to ensure its revenue remains the same. It does this for the same reason it had above.
Now if the subsidy isn't enough and the hospital can't raise prices, it will have to weigh whether it can continue to offer the service.
The hospital may decide to eliminate the service rather than suffer the loss.
In the case of hospitals, many of them are nonprofit, but all of them provide care for those who can't pay and also take a loss of up to 70% on Medicaid patients.

Posted by: pracpol | October 13, 2009 8:06 AM | Report abuse

Yet one other possible outcome: Who said Blockbuster is required to rent to anyone who asks, even at a loss? Doctors aren't forced to take Medicare patients. If the rental subsidy isn't sufficient, then adequate service won't be there and the program will fail. And it doesn't matter whether it's a doctor or a movie rental.

Posted by: dasimon | October 13, 2009 12:00 AM | Report abuse

the problem with that argument is that you're forgetting that Medicare is a captive market and movie rentals are not. There are no options for healthcare outside of Medicare or Medicare Advantage if you're over 65. There are other options out there for movie rentals or you can go without watching movies. You can't go without healthcare.

Posted by: visionbrkr | October 13, 2009 8:19 AM | Report abuse

One naive question here - why is that Insurance Industry never asked for 'pay for results' for Doctors and Hospitals? Why is there no business incentive for them for going away from the prevailing 'pay for service' model? I agree, for now it is way to late to open the Wyden types of Bills. But just curious how insurance industry could not tip the balance for 'pay for results' model.

Posted by: umesh409 | October 12, 2009 11:59 AM | Report abuse

Its not naive. The answer is as simple as one word: COMPETITION. Insurers compete for hospital business with each other. If Aetna for example required pay for performance but United did not then hospitals would not accept Aetna and employers could change insurers and Aetna would lose market share.

Medicare doesn't have this fear as they have no competition in their captive market.

Posted by: visionbrkr | October 13, 2009 8:23 AM | Report abuse

msoja: "--'I'm usually a big fan of free markets.'--

"No, you're not. If you were, you'd know that there's nothing wrong with monopolies (if you could even manage to find one as an example.) Period."

Hm. Curious as to why we have all those laws against anticompetitive mergers, then. So I think that response needs a little more elaboration. I thought it was pretty well known that market dominance by only a few players provides little incentive for efficiency and may create large barriers to entry for others, resulting in higher prices and lower quality (the opposite of what we usually expect from market competition).

Also, isn't it a bit presumptuous to assume what I do and don't think? I think explanations work better than accusations. And I think it's not that hard to find people who think monopolies (or equivalent market dominance) are problematic; even the basic Wikipedia entry raises numerous concerns.

Any response to the observation that results from other countries seem to show that markets simply don't put the incentives in the right places for health care outcomes? If they're getting as good outcomes as we are at a fraction of the cost, why not do what they're doing? Or is it "markets for markets' sake, regardless of the results"?

Posted by: dasimon | October 13, 2009 10:46 AM | Report abuse

So the best idea this writer can come up with is to try to discredit PwC by comparing it to Andersen??? Let's take a look back at what happened to Andersen about 8 years ago...

Posted by: Ronie | October 13, 2009 11:06 AM | Report abuse

Healthcare has a massive Obesity problem and it isn't attributable to eating disorders.

The primary Obesity elements are the: hundreds of expensive, unnecessary infrastructures rife with cost centers, profit-takers, and executive compensation packages ... the audacity of these infrastructures to serve as collectors and payers of money devoid of any social or patient care value ... the intellectual density of Americans for allowing elected officials to perpetuate ludicrous payment bureaucracies empowered to deny coverage eligibility and care ... and the corruption inherent in a pay-to-play political system, which rewards legislators for defeating the publc interest and common good.

Healthcare is the largest industry in the nation. It employes 11 million people. It is a money trough ... often a license to steal ... for tens of thousands of overpaid executives and physicians.

The 'deceptive report' simply affirms that there are consulting firms willing to sell ... and plenty of buyers willing to pay for ... biased and incomplete information It is a tactical move which will hopefully blow up in the faces of the authors and purchasers of the content. In effect, it has as much impact as a BB in a box car.

Until and unless we get single-payer, Medicare-for-all, or a muscular public option, the Obesity in the healthcare system will simply grow exponentially.

Posted by: HCIHCMC | October 13, 2009 3:36 PM | Report abuse

Republicans still cooking the books and withholding vital facts like they did when lying us into the war in Iraq? Shocking, I tells ya...just shocking!

Posted by: wilder5121 | October 14, 2009 12:19 AM | Report abuse

--"Curious as to why we have all those laws against anticompetitive mergers"--

Because people like you pay only lip service to the concept "free market".

Posted by: msoja | October 14, 2009 9:25 AM | Report abuse

The WPC did what it was asked and paid for. It's just that the analysis it was asked to do is nearly meaningless. It only analyze the impact of specific provisions and not the entire package. They also made assumptions (i.e full cost-shifting), while omitting others. An honest report would also include an uncertainty analysis to account for these assumptions.

This is like a drug study on depression that only analyzes the effect of some of the drug ingredients in a group of patients who excersise 3x/week. I cannot use such a study to influence my decision on whether to prescribe the drug. Drug companies would never ask investigators to conduct and publish such a limited study. No medical journal would actually publish it.

Folks, this report provides political fodder but little objective information or data for real policy analysis

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