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Defending the insurance industry's report on health reform's cost impact

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By Karen Ignagni
Tuesday, October 20, 2009

It has been alleged that health insurers commissioned a report recently from PricewaterhouseCoopers as part of a last-ditch effort to kill health-care reform. A relentless public relations campaign has attacked the messengers -- our association, America's Health Insurance Plans (AHIP), and PricewaterhouseCoopers -- as a way of discrediting the findings that major provisions in the Senate Finance Committee proposal will have the unintended effect of increasing the cost of health-care coverage.

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Let me be clear and direct: Health plans continue to strongly support reform. In fact, last year we proposed new insurance market rules and consumer protections to achieve universal coverage, remove restrictions on preexisting conditions and end the practice of basing premiums on health status or gender. We firmly believe that all the cost concerns the report raised can be resolved.

Some have questioned the timing of the report's release. AHIP commissioned the report Sept. 29, as it became clear that the Finance Committee would gut the requirement that all individuals obtain coverage. We received the study on Saturday, Oct. 10, and shared it with our members the next day.

The report's central finding has long been noncontroversial in health policy and economic circles: namely, that implementing reforms of the insurance market without a strong requirement that everyone participate will cause adverse selection and significantly increase costs for individuals and small businesses. This finding echoes the message President Obama delivered in his address to Congress last month. "And unless everybody does their part, many of the insurance reforms we seek -- especially requiring insurance companies to cover preexisting conditions -- just can't be achieved. And that's why under my plan, individuals will be required to carry basic health insurance," he said.

The report concluded that the proposed new taxes on health plans, pharmaceutical manufacturers and medical-device makers will increase the cost of coverage. These findings are entirely consistent with the judgment expressed by the director of the nonpartisan Congressional Budget Office, who recently told the Senate "that piece of the legislation would raise insurance premiums by roughly the amount of the revenue collected."

The study also found that Medicare cuts enacted in the absence of systemic reforms in the way care is delivered will simply result in more costs being shifted to individuals and employers who purchase private coverage.

The combination of these three inflationary factors would mean that in a few years, far more employees' health plans would be subject to the new tax on comprehensive benefit packages than is currently projected, quickly turning the so-called Cadillac tax into a Chevrolet tax.

The study clearly states that its analysis covers only these provisions and specifically notes that it did not factor in the impact of proposed premium subsidies. Nevertheless, critics have charged that the study nefariously hid the fact that it omitted provisions designed to enhance affordability, such as the subsidies and a grandfathering clause.

Subsidies have broad bipartisan support and will clearly help many moderate-income families pay for health coverage. But subsidies will do nothing to bring down the actual cost of that coverage. Suggesting that they will is comparable to saying that Pell Grants reduce the cost of college tuition. Pell Grants provide families enormous help with the high cost of education, but they do not lower tuition levels. Meanwhile, tuition prices soar.

The alarming implication of the study is that the proposed subsidies would not be adequate and would have to be increased as costs escalate.

The provision that supposedly "grandfathers" people into their current plans offers limited protection against higher costs because one-third of Americans change their coverage each year. Anyone who changes jobs, gets married or divorced, has a child or moves to another state would not be protected by the grandfather clause.

Costs are the critical issue because their projected growth threatens the sustainability of the entire health-care system. The CBO projects that health-care spending will rise at an annual rate of 6.2 percent for the next decade. With another decade of soaring health spending, wages will stagnate; employers will struggle to maintain coverage; health spending will crowd out other critical national priorities such as education, the environment and national security. Medicare itself will become insolvent.

We believe the nation can bend the cost curve by 1.5 percentage points annually if reform includes systemwide efforts to reward best practices, shrink the wide variation in care, expand care coordination, and equip doctors and patients to make decisions based on what works.

The shared promise of health-care reform is guaranteeing access to affordable coverage for those outside of the system while ensuring that those who have coverage can keep what they like. That promise can be kept only if Congress puts the nation on a path to universal coverage and confronts what lawmakers have thus far been unwilling to address: the need for tangible, effective steps to reduce the growth in health-care costs and make the system sustainable for generations to come.

The writer is president and chief executive of America's Health Insurance Plans.


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