Federal Diary: Insurers group warns of premium increases

Entering the ring in the fight over fixing health insurance coverage is the Association of Federal Health Organizations.

The group is little known (it has no Web site, and there's no mention of it in a news database), but it does represent a significant constituency -- federal employee-sponsored health insurance companies and Blue Cross/Blue Shield, which is an associate member.

The organization is making itself heard now with a report that says two provisions in the massive health insurance reform legislation plodding through the Senate could hurt enrollees in the Federal Employees Health Benefits Program. Federal workers are not singled out -- the same provisions apply to other health plans.

In a Nov. 25 "White Paper" to the Office of Management and Budget, the organization says premiums could go up and benefits could go down because of an insurer fee, which would be imposed next year, and an excise tax on premiums above a certain amount, which would take effect in 2013.

"The annual insurer fee would lead to increased premiums, and in order to avoid the excise tax, plans would be forced to reduce benefits," the report says.

Hold on, counter supporters of the legislation. They insist that looking at these two items in isolation is like describing an elaborately decorated room by peering through a keyhole. Erin Shields, the Senate Finance Committee's press secretary, places the organization's report in the same class as one from another industry group, America's Health Insurance Plans (AHIP). It said the Senate bill would greatly increase premiums. Later, the authors of the AHIP report, analysts from Pricewaterhouse Coopers, admitted they had not considered all of the bill's sections when reaching their conclusions.

"Everyone knows reports bought and paid for by the insurance industry don't provide the reliable information Americans need on health-care reform," Shields said. The latest "report analyzes the effects of only two provisions without taking into account the many key pieces of the bill, like incentives for better, more efficient patient care, increased focus on prevention and new policies that simplify health plan administration. In contrast, when the independent, nonpartisan economists at the Congressional Budget Office analyzed the entire bill, they concluded that premiums for large groups, like people in [the Federal Employee Health Benefits Program], will decrease by up to three percent after decades of increases."

But the CBO report can be read in more than one way. It does say: "In the large group market, which is defined here as consisting of employers with more than 50 workers, the legislation would yield an average premium per person that is zero to 3 percent lower in 2016 (relative to current law)."

Yet the CBO also makes it clear that premiums could drop at least in part because insurance companies could raise the amount consumers pay at the point of service, through co-pay and deductible increases or through a cut in benefits: "Plans could achieve lower premiums through some combination of greater cost sharing (which would lower premiums directly and also lower them indirectly by leading to less use of medical services), more stringent benefit management, or coverage of fewer services."

Some wasteful services need to be cut, argue advocates of the legislation.

"Health reform is designed to make smart changes to our health system that will reduce excessive, inefficient care and increase benefits that help patients get well sooner," Shields said. "For example, health reform invests in incentives to reduce hospital re-admissions so patients get the best care before they're released from the hospital."

An independent voice in this debate, Walton Francis, a health economist and primary author of Checkbook magazine's Guide to Health Plans for Federal Employees, said that "the insurer fee would definitely increase costs and premiums," though not by much. "I am aware of no substantive justification for such a fee," he added. "It is a revenue raiser, pure and simple."

The excise tax, he said would have "very substantial economic effects over time . . . both positive and negative," but "the net negative impact on federal employees and retirees will be relatively small."

The good news, he added, is the tax could lead to an overall reduction in medical costs that would benefit everyone.

Tuesday the battle continues as three federal employee unions and members of Congress plan to blast the excise tax. Stay tuned.