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Fact Checker: Health Insurance Industry Reports

Health insurers released two reports this week warning that the reform legislation passed by the Senate Finance Committee would result in soaring premiums.

Both reports -- by PricewaterhouseCoopers for America's Health Insurance Plans and by Oliver Wyman for Blue Cross Blue Shield -- predict premium increases of $3,000 to $4,000 per year for the typical family without employer-based coverage. The finance panel's bill "would have the unintended consequence of increasing premiums and making coverage unaffordable for millions of people," the Blues' chief executive, Scott Serota, wrote in a letter to Congress attached to his group's report.

The White House and congressional Democrats have dismissed both reports as slanted, last-minute attempts to block the legislation. "How many fatally flawed insurance company 'reports' do insurance companies need before their credibility is entirely shot?" said Finance Committee spokesman Scott Mulhauser.

Here is a summary of the insurance industry claims, coupled with a vetting of them by Washington Post staff writer Alec MacGillis:


1. The Individual Mandate

Both reports argue that, because the bill weakened the annual penalty for people who do not obtain health insurance, many young, healthy people would opt to pay rather than get covered. This would result in a concentration of older and sicker people without employer-based coverage buying plans, thus driving up premiums for those people.

Analysis: There is a lively debate about whether the penalty would goad healthier people to get coverage. But the reports are probably too pessimistic. Massachusetts has gotten all but 3 percent of residents into coverage with a penalty of roughly the same size. The reports also do not take into account the draw of the low-cost "young invincibles" policy included in the bill. And the Congressional Budget Office estimates coverage levels would rise to 94 percent of Americans, from 83 percent.


2. New Regulations on Insurance Plans

Both reports argue that new insurance requirements would also push up premiums. Insurers would no longer be able to deny coverage based on preexisting conditions, would have to limit how much they charge based on age, and would have to meet minimum standards for the quality of the coverage offered.

Analysis: There is no question that consumers in loosely regulated states now buy bare-bones policies that would not meet the new standards. But the reports underestimate the pricing power that individuals without employer-based coverage and small businesses would enjoy as a result of being pooled together for coverage, instead of buying on their own in highly uncompetitive markets, as they do today. In addition, small businesses already enjoy protection against denial of coverage, so that rule would not represent a change for them.


3. Soaring Cost in Particular States

The Blues report argues that premiums for those without employer-based coverage would soar most in certain parts of the country, where states loosely regulate the kind of plans that insurers can offer different sorts of consumers. Premiums, it predicts, would increase the least in the Northeast and the most in the South, Mountain West and Southwest.

Analysis: The bill would affect some states more than others, but consumers in those states could find that, as premiums for some go up, many others' would decline. The reason: Lightly regulated states also tend to have higher rates of uninsured and underinsured people, which leads to more people going to the emergency room and higher premiums for those who are insured. Requiring insurance for all may reduce those costs, creating a downward pressure on premiums.


4. New Tax on Costly Employer-Based Plans

The AHIP report argues that a proposed tax on high-cost insurance plans -- the main new revenue source in the Finance Committee bill -- would eventually hit many more plans than expected, making more and more people subject to the tax. The report also argues that, while the tax is to be assessed on insurers and employers, it would be passed on to customers through higher premiums.

Analysis: The report overlooks the likelihood that insurers, employers and employees would shift to less costly plans to avoid the tax. This would happen to such an extent, congressional auditors predict, that much of the new tax revenue would actually come in the form of income taxes -- on the higher wages that employers would give in the place of top-shelf health benefits. The report's authors themselves note that a shift to less costly plans would likely occur, but say that they would nonetheless base their estimate on the tax being fully applied.


5. Medicare and Medicaid Cost Shift

The AHIP report predicts that premiums would rise further as a result of proposed cuts in Medicare and Medicaid spending, which the report says hospitals and doctors would make up by passing on all of the cuts in the form of higher rates for private insurers.

Analysis: The report probably overstates the cost shift. The commission that advised Congress on Medicare reported in March that hospitals that rely most on Medicare and Medicaid report costs closer in line with Medicare payments than do hospitals with a big private payer base. That suggests the former has found ways to make do with the public program's rates. Even the Lewin Group, a consulting firm owned by an insurance company, estimates that, at most, 40 percent of underpayment by public programs is passed on to private insurers.


6. Subsidies for Buying Insurance and Cost Controls

The AHIP report did not take into account the impact of government subsidies for buying coverage -- the heart of the legislation -- on insurance affordability, nor did it account for provisions in the bill that aim to slow the growth of health-care spending. PricewaterhouseCoopers has distanced itself from the report by saying that the AHIP had instructed the firm to focus on only some features of the bill. The Blues report also left aside the cost-control reforms, but it took the subsidies into account in cursory form, finding that they would mostly offset the predicted increase in premiums for about 15 million buying insurance but not for another 5 million.

Analysis: Even reform supporters concede that provisions in the bill to control the growth in health-care costs are limited and hard to assess. But it is dubious to predict the affordability of insurance under the bill without taking into full account the impact of subsidies, which would apply to families earning as much as $88,000. Jonathan Gruber, an MIT health-care economist who has advised the Finance Committee, has done his own estimates that take the subsidies into account. He predicts that savings would be biggest for older people and for those who qualify for subsidies -- as much as several thousands of dollars per year -- but even a young person who does not qualify for subsidies would save several hundred dollars a year.

By Alec MacGillis - The Washington Post
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