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What do health insurers want now?

By Suzy Khimm

After coming out against the Affordable Care Act in the final stage of the debate, the health insurance industry backed more Republicans than Democrats this election cycle, betting they'd be better off under a GOP-led Congress. One conundrum is that health insurers strongly support the individual mandate to purchase insurance -- the provision that's become Public Enemy No. 1 for most conservatives who oppose "Obamacare." The industry has also declined to support the GOP's demand to repeal the law. But insurers are guessing -- rightly -- that repeal is exceedingly unlikely, and that it will be up to the courts, not Congress, to decide the fate of the individual mandate anyway. In the meantime, there are other ways the industry would like to gut the law, and they're trying to persuade Republicans -- and some moderate Democrats -- to join them. Politico's Pulse reports:

Insurance industry sources tell PULSE they are waiting for the post-election dust to settle before diving into two main issues: dialing back cuts to Medicare Advantage plans and attacking the $6.7 billion yearly premium tax set to take effect in 2014. The issues resonate with constituent groups that Democrats have arguably had the toughest time getting on board with reform: seniors and small business.

"I think when it becomes very clear to small business owners that they're going to have to pay more for their premiums that becomes a very serious issue," one insurance industry source tells PULSE of soon-to-come efforts to push back against the health premium tax, expected to hit small group plans the hardest.

I suspect that Republicans would be pretty amenable to going after health care on these grounds. During the debate over the bill, the Medicare Advantage cuts were at the heart of the GOP's claim that Democrats were trying to slash entitlement benefits for seniors. Their attacks were misleading: Medicare Advantage plans are actually generously padded private insurance plans -- a Supersized, more costly version of standard Medicare -- that Democrats believed taxpayers shouldn't subsidize so heavily. But together with the charge that the law would create "death panels," the outcry over the Medicare Advantage cuts allowed the GOP to convince the public that bill would be a poison pill for the elderly.

Similarly, labeling the excise tax on the insurance industry as a "tax on small businesses" doesn't give the complete picture. The yearly premium tax is a blanket fee that's placed on the entire insurance industry, starting at $8 billion in 2014 and increasing to $11.3 billion for the three years thereafter, divvied up based on the industry's share of covered lives and market share. In other words, it's a broad-based fee that doesn't single out premiums for small businesses, per se.

According to Peter Harbage, a District-based health policy analyst, the industry will probably argue that it will end up passing such costs onto small businesses disproportionately because of new regulations that require insurers to spend at least 80 percent of premium costs on medical care for individual and small-group plans. (For larger employers, the so-called Medical-Loss Ratio is higher, at 85 percent, which gives insurers less room to increase overhead costs.) But the difference between the two MLR classes isn't much, and to cast the tax as a special burden for small businesses seems more like convenient political strategy than a policy descriptor.

The purpose of the fee itself is pretty straightforward: It's meant to generate revenue to offset the cost of the law, and it's easy to see why industry would be inclined to oppose it. Other private-sector stakeholders — like Pharma and the medical device industry — must pony up similar fees under the ACA, and they aren't thrilled about it, either. The reality is that every stakeholder has to bear some of the burden of offsetting the costs of the law, in exchange for the benefits they'll receive — e.g. a vast new pool of customers for the insurance industry. Whether or not the insurers decide to pass the costs of this excise tax onto small businesses, or any other customers, is a business decision that each company itself will make. And even if they do decide to raise premiums, there are other provisions under the law that will help make health care more affordable for small businesses, including tax credits and the new exchanges that will also be in effect by 2014.*

Democrats defended such provisions passionately when the bill's passage was on the line. But the Democratic Party has since put so much distance between itself and health-care reform -- fearing the repercussions in an election year -- that it's easy to forget that they had ever done so. As a result, the law's opponents have yet again gained the upper hand in messaging, and even Democratic voters don't recognize all that's been accomplished.

That being said, there is an upside to the revival of these Republican and industry-led criticisms of the Affordable Care Act. The renewed attacks give Democrats another opportunity to change the public's understanding of health-care reform -- that is, should they decide to step up to the plate this time and embrace the law instead of trying to disown it.

*Correction: The original post referred to this excise tax as the Cadillac tax on high-cost insurance plans. The tax in question is a different provision.

Suzy Khimm is a reporter in the Washington bureau of Mother Jones. Read more of her work here, and follow her on Twitter.

This post has been corrected since it was first published.

By Suzy Khimm  | November 5, 2010; 5:14 PM ET
Categories:  Health Reform  
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Comments

The public understands HCR just fine. That's why we put the republican in charge.

Posted by: obrier2 | November 5, 2010 1:16 PM | Report abuse

I think this goes to the heart of the conundrum that the Republicans find themselves in. The Tea Partyers probably really do want to roll the hole thing back, mandate and all. This isn't going to happen, but the Republicans may not even try because of the reasons you listed above. Yet, they will attempt to chip away at the parts of the legislation that they supposedly were in favor of - stricter limits on insurance companies, taxes to pay for it, etc. So, how do they proceed? My guess is that they proceed first and foremost with an investigation of ACORN.

Posted by: klautsack | November 5, 2010 1:40 PM | Report abuse

"The excise tax applies only to premiums for businesses with 50 or more employees -- and would only be imposed upon the costliest benefit packages. The tax is meant to incentivize employers to shop around for cheaper premiums, helping to drive down the unsustainably high health-care costs that threaten to bankrupt the entire economy"


Suzy the problem is that they're attacking this cost from the consumer side instead of also (and more importantly) from the producer side of healthcare. If they ever took on providers of care like they're doing in MA then we'd really see no need for an excise tax.


http://www.boston.com/business/healthcare/articles/2010/11/05/us_watching_mass_fight_on_health_costs/?camp=obinsite

I have a client that is a printer with 65 employees that is struggling becuase their employees are older and sicker. they are currently very near what the excise tax will be at with a weakened plan and the excise tax as it stands will force them to pay the excise tax as they're caught between high costs because of their age and cost of care and the inability (due to the law's requirements on minimum coverage) to reduce cost enough to avoid the tax.

oh and looks as if AARP is raising its costs and blaming healthcare reform in part for it. Wonder if they'll get tarred and feathered for speaking the truth like AHIP did. My guess is NO.

http://www.boston.com/business/healthcare/articles/2010/11/04/citing_health_overhaul_aarp_hikes_employee_costs/


In short if they went after the true drivers of costs instead of the low hanging fruit of insurers they'd really be able to do something.

Posted by: visionbrkr | November 5, 2010 2:28 PM | Report abuse

The PPACA -- Patient Protection and Affordable Care Act -- is a beast of a document not easily understood by non-attorneys: many proponents gloss over the more atrocious portions of the PPACA, as easily as they omit the lead portion of the Act's name as stated in the Act's first paragraph.

As predicted, most employees will see a 13 to 15% increase in health insurance cost next year plus a reduction in benefits: the AARP example cited above is typical. When describing this predictable effect last year, Kruguman said "And that's a good thing." Personally, I'm not sure most folks agree that being forced by the government to pay more for less is such a good thing: as the year progresses and dollars continue to be sucked from the pockets of hard-working Americans, I think we'll see an even greater shift to the right.

Posted by: rmgregory | November 5, 2010 5:30 PM | Report abuse

How fair is for me to say to you- you have to spend 80% of the premiums on care (despite the obvious year to year variances in plan expenditures) and out of the 20% you get to spend on other stuff, you have spend a bunch of that on this excise tax.

What that clearly leads to is now both the insurers AND the providers are incentivized to raise costs of care. If the insurer lowers payments to providers, and the overhead is basically fixed, the profits disappear.

The odd collection of rules that make up this plan seem concocted to make it impossible to offer insurance. The whole concept of the individual mandate is necessary because it is no longer insurance, it is simply a plan where you pay a flat fee and co-pays for government defined health services. There is no room for innovation in the model, and it is already making things worse.

Posted by: staticvars | November 5, 2010 5:30 PM | Report abuse

Perhaps we'll hear more about the PPACA on the Olbermann Show tonight.

http://www.cbsnews.com/8301-503544_162-20021940-503544.html

Posted by: rmgregory | November 5, 2010 5:31 PM | Report abuse

The 80 percent medical loss ratio shouldn't be a problem. Insurers are reporting record earnings. If they hadn't been spending only half on health care, they wouldn't have this problem.

Posted by: chi-town | November 5, 2010 7:07 PM | Report abuse

Gee, that wouldn't cut into the supposed, but actually non-existent cost savings from HCR at all now would it!

Posted by: 54465446 | November 5, 2010 7:17 PM | Report abuse

"I think when it becomes very clear to small business owners that they're going to have to pay more for their premiums that becomes a very serious issue,"

Ummmm, no. Most small businesses are not the least concerned with the premium tax because they can't afford the cadillac coverage that will be subject to the tax. It's BIG LABOR that's primarily got it's panties in a wad over the premium tax, and if you think the Republicans give a fig about the concerns of BIG LABOR, I suggest you look at the political contributions of the campaign that ended Tuesday last.

Posted by: bgmma50 | November 5, 2010 9:02 PM | Report abuse

rmgregory:
"As predicted, most employees will see a 13 to 15% increase in health insurance cost next year plus a reduction in benefits"

That would be super since we had a 27% increase in cost plus a reduction in benefits last year before the ACA passed. It's nice to think that we're seeing this kind of improvement even before the main provisions kick in in 2014.

Posted by: J_Bean | November 5, 2010 11:39 PM | Report abuse

Wouldn't it be hilarious is the GOP-lead house killed the unpopular mandate and left the rest of the reforms standing? It would serve those health insurance "elites" right.

Posted by: fzdybel | November 6, 2010 12:46 AM | Report abuse

Yonkers, New York
06 November 2010

Private health insurance companies must have contributed all that they could easily afford to Republican and Tea Party candidates in the midterms elections--for a single-minded purpose.

They don't want to have anything to do with the Obama Health Care Reform because it restrains them and prevents them from doing what they had been free to do before, which was 1) to deny coverage to people with 'pre-existing' conditions; and 2) to refuse to pay for medical procedures even if covered by existing Contracts.

Now that Republicans have regained control of the House of Representatives, they naturally expect the Congress to repeal or completely gut the Obama Health Care Reform--of course in return for the support they gave those successful candidates.

Quid pro quo it is called.

The problem for them is that the Senate is still in the control of Democrats.

Moreover, the White House is also still in the control of a Democrat.

Mariano Patalinjug

Posted by: MPatalinjug | November 6, 2010 6:13 AM | Report abuse

j_bean needs to better understand the idea between averages and his specific instance. If your rates went up 2% last year (as some did) then would you come on here and say that PPACA increased my rates by 11-13%?

bgmma50,

sure unions are in a pinch because of it but its not just unions and its not just cadillac plans. If we brought down the cost per unit of care (or at least had a clue as to what it was) then no one would have to pay the excise tax and we wouldn't need the PPACA.

Posted by: visionbrkr | November 6, 2010 10:21 AM | Report abuse

But the difference between the two MLR classes isn't much, and to cast the tax as a special burden for small businesses seems more like convenient political strategy than a policy descriptor.

But Suzy what you don't understand is that the cost to actually administer these plans is MUCH greater in small group than in large group and much greater in the individual market than small group.

For example, if you had to explain something to a stadium full of people over a loudspeaker and only had to explain it once to them and then take each of those people individually (or in small groups) and had to explain it to each of them it would take more time and more resources to explain it hundreds or thousands of times vs explaining it once to the entire large group.


It still amazes me that people who have little knowledge of how this all works have so much say in it. Like this line for example that makes ZERO sense:

"Whether or not the insurers decide to pass the costs of this excise tax onto small businesses, or any other customers, is a business decision that each company itself will make"

Insurers won't decide this. CLAIMS COSTS will decide this. Aggregate claims of the groups in question will decide this.

Really really scary.

Posted by: visionbrkr | November 6, 2010 3:47 PM | Report abuse

America's moms and dads don't want to go back to the bad old days when insurers could drop us or our children just when we got sick! We want to keep America moving forward: http://bit.ly/asvNdW

Posted by: RobinMom | November 6, 2010 4:31 PM | Report abuse

"If we brought down the cost per unit of care (or at least had a clue as to what it was) then no one would have to pay the excise tax and we wouldn't need the PPACA."

Yes. But instead of focusing on bringing down PROVIDER costs through governmental cost controls, consumer oriented cost controls, or some combination of the above, (which would automatically have brought down insurance costs and made BOTH health insurance AND health care more affordable), our genius administration and our late but not lamented Democratic Congress chose to tax those who work and earn their coverage, flawed as it may be, in order to subsidize cadillac coverage for tens of millions of people whether or not they have ever lifted a finger to earn or pay for it themselves, and all with complete disregard for whether or not our existing health care infrastructure and provider system can even handle the influx.

Posted by: bgmma50 | November 6, 2010 9:03 PM | Report abuse

Wow -- via Brad DeLong: NBER says "hospital cost growth" is slower under Massachusetts care than the nation as a whole -- hospitalizations for preventable conditions reduced, decreasing length of stays in hospital, less admissions from emergency room. Among hospital discharges, the uninsured dropped 36%. Getting everybody into the system looks like a good idea.

Posted by: Lee_A_Arnold | November 6, 2010 10:28 PM | Report abuse

What they want is the ability to raise rates as much as they want, whenever they want

They also want the ability to cancel any plan they want

They also want the ability to deny anyone they want

They want the ability to screw over ANYONE who costs them any money all the while collecting money from these people when they are healthy

Posted by: Bious | November 7, 2010 4:37 PM | Report abuse

What do insurers want? The same as everyone else in a free market economy. They want to make a profit. That's a good thing. Profits bring more capital to an industry which in turn brings more competition which brings better service and lower prices. Health Care Reform, like any reform needs to harness the profit motive, not fight it. It needs to flow with markets, not stand against them.

Fighting market forces produces two costly and baneful effects. First, it creates an incentive for big firms to lobby for special treatment, reducing comptetition, spawning corruption, and crowding out smaller businesses. Such firms care more for what they can get from Washington than what they can do for their customers. Second, it produces market irregularities: the law of unforseen consequences. The market will fight to return to an equilibrium, and will do so by attracting captital away from companies who need and deserve it most.

The first thing the Republican congress should do, if it really believes in free markets, is remove restrictions on interstate sales of health insurance. The big insurers won't like that, of course. They will have to improve their product, prices, and service rather than rely on state legislatures. But the result will be more competition, and better, cheaper coverage for everyone.

Posted by: dilettante | November 8, 2010 1:17 AM | Report abuse

@dilettante,

sadly the MLR rulings that does not allow fraud prevention in the formula (or at least leave it out of the formula altogether) will only help to increase costs because it'll be in insurers best interests to increase cost and thus increase the numerator in the equation. That's what happens when you let politicians and the blogosphere rule the day in something they have little knowledge about.

Posted by: visionbrkr | November 8, 2010 7:41 AM | Report abuse

The tax offsets WHAT costs?

We're told that ObamaCare REDUCES costs. Not that anyone ever believed that.

Posted by: LibertyIssues | November 8, 2010 8:51 AM | Report abuse

Funny thing, people complain about the government which in order to provide health care services to those who need the most, must find ways to increase revenue and yet no one complains about say the oil companies who increase the price of gas at will, thus making everything more expensice and say Disney who raises astronomically in order to increase their profits astronomically; the credit card companies and most importantly the pharma industries and so and so on.Where is the fairnes in this doctrine?

Posted by: postDC | November 8, 2010 9:36 AM | Report abuse

Thanks for this analysis! It would be nice if the WAPO found it worthwhile to actually provide this kind of insight on its front pages.Until the media own up to their failure to inform on this legislation and quit blaming everyone else for rampant misinformation, we are stuck with a confused electorate.

I could live with this kind of craziness in our truncated media coverage about credit cards or oil companies. That we are so slovenly about health is disconcerting.

Posted by: pbkritek | November 8, 2010 10:03 AM | Report abuse

Ezra.........industries -- insurance or pharma -- do not bear the cost of the fees/taxes that ACA has mandated. Citizens bear them as the costs are necessarily passed on. You cannot mandate cost reductions by placing taxes on services and products. You cannot save money by dismantling maximums, making pre-existing conditions coverable, mandating new benefits, increasing the number of insureds and taxing the rest of us to do it.

Talk about a broken record.

Posted by: buggerianpaisley1 | November 8, 2010 11:39 AM | Report abuse

Obama promised daily during the health reform debate the we would be able to keep the insurance that we have. I am one of the 25,000 seniors in Oregon who lost my Advantage plan because 15 companies offering Advantage plans bailed out of Oregon this year. Of course, my company offered a supplement plan at a significantly higher premium with less benefits. More than four million seniors nationwide have lost their Advantage plans. Basically, where this was an obvious consequence Obama screwed us. Good luck in the next election. Not!

Posted by: hossplay3 | November 8, 2010 1:13 PM | Report abuse

The 'exise tax' is the Caddilac Tax. This is not a tax, it is an annual fee on the health insurance sector that increases from $8 billion in 2014 to $14.3 billion in 2018. Each insurance company's fee is based their market share (using net premiums as a proxy) of fully insured.

The administration didn't go after cost because it couldn't. The problem is too big, it would require regulation of the healthcare providers (hospitals and insurers) and the political ramifications of coming between a citizen and their doc/healthcare provider would be toxic.

There is no "free market" interprise in healthcare. Healthcare insurers and providers agree to rates, which companies pay for (70%+ of all private health care spending is on the backs of employers) and is used by employees who have little incentive to ration use or take personal accountability for their own health.

Health insurers and providers have done little to stem the cost, knowing that they can continue to push increases through to the big payers (employers). Problem is those days are close to being over and no one knows what to do now.

The cost trends have been with us for a long time ... they are not new. What is new is the impact that the recession has had on the individual market as adverse selection continues to drive costs up.

Insurance is supposed to be about pooling resources for major catastrophe (sharing risk) ... that's what Life, Auto, Homeowner and Renters insurance do. An auto policy doesn't cover oil change, a homeowners policy doesn't cover pest exterminators. But for some reason, health insurance covers maintenance and catastrophe ... if you want it to do that, you have to understand that there is a cost.

In the private sector CMS estimates that $6300 is being spent per person and in the public sector (Medicare and Medicaid) that number is $13,800 per person. These aren't premium dollars, these are costs of medical care.

The costs are real and until American's start to take some personal accountability for their own health and healthcare choices, we will continue to see something spiral out of control.

Posted by: lara9209 | November 8, 2010 5:59 PM | Report abuse

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