Citing reports of "windfall profits" in the insurance industry, Rep. Henry Waxman (D-Calif.) called on White House inflation fighter Alfred Kahn to reconsider recently issued price guidelines for that industry.
In a letter hand-delivered to Kahn yesterday, Waxman said he was "distressed" by a story in Sunday's Washington Post that disclosed a Federal Insurance Administration memo warning that the guidelines would result in excessive profits for the insurance industry.
The story quoted a Council on Wage and Price Stability official as saying the council's policy is to ignore profit figures -- regardless of how large they might be -- and concentrate solely on decelerating price increases.
Further, the story stated, the proposed insurance guidelines were not reviewed by Kahn before being released, and COWPS staffers consulted only with industry representatives before finalizing the standards.
Waxman, who chairs a House subcommittee on health and the environment, told Kahn, "I would like to discuss with you whether insurers will indeed collect windfall profits under the proposed guidelines, and if so, what can be done to prevent this from reinforcing the current rate of inflation in the hospital sector."
"I am concerned," Waxman wrote, "that the administration's efforts at hospital cost containment could be undetermined" because "insurance is the backbone of the American health care cost reimbursement system."
Waxman added "I am sure that you share my concern over recent HEW statistics showing hospital costs are the largest and fastest growing component of the highly inflationary health care industry, constituting 40 percent of all health costs."
According to Department of Health, Education and Welfare figures, Waxman said, "private insurance premiums for hospital care will more than double between 1975 and 1980... (and) my study of the cost containment issue suggests that as long as third party payers -- the insurers -- can increase their profits without having to insist on efficient management of the hospitals they reimburse, the runaway rate of inflation in our hospital sector will continue as a rate which gives me the greatest concern."