PWC Report and AHIP’s Motives

I took a day off yesterday to be with my daughter on her birthday, and all hell broke loose in the healthcare reform debate.  The proximate cause: a report from PriceWaterhouseCoopers — commissioned by the gang over at America’s Health Insurance Plans — projecting that health insurance premiums would skyrocket as a result of several key provisions in the healthcare reform bill out of the Senate Finance Committee. 

The report is flawed and biased, as several policy experts point out (see Ezra Klein here and Jonathan Cohn here).  For example, the report assumes that taxes on high-cost health plans would simply be paid, rather than resulting in people shopping around for lower-cost plans.  It also ignores the impact of government subsidies on net insurance costs to households.  All I can say is, dude, what did you expect from an industry-sponsored study?

In fairness, however, the report does raise some serious concerns — namely, reform that leaves millions uninsured in part because of a weak coverage mandate is a formula for adverse selection.  Furthermore, it’s likely there will be some cost shifting and pass-throughs to the employer-sponsored insurance market.  (Probably nowhere near the magnitude the study assumes, but nonetheless).

Yes, lots of people will get better — and cheaper (sorry, AHIP) — coverage through insurance exchanges with standardized (read: commoditized) benefit structures, as Jonathan Gruber of MIT notes.   But the legislation simply has no meaningful cost-control mechanisms to “bend the curve” — a key failing that will haunt this round of reform in years to come.

The thing about the report that’s almost comical is that it has succeeded in putting supporters of healthcare reform in the awkward position of defending the flawed Senate Finance Committee bill and pretending that the legislation won’t have lots of unintended consequences.  It also raises the question of whether the insurance industry — which has supported some important aspects of reform — is now out to kill the effort.

My guess is no.  The industry isn’t out to kill reform; why kill something that gives you most of what you want, i.e., no public option and no serious consideration of single-payer healthcare.  I do think the industry is still lobbying for a stronger insurance coverage mandate to address the likelihood that the young and healthy will simply pay a small fine rather than buy health insurance.  The industry is also out to gut some parts of the legislation it doesn’t like — mostly, the $6+ billion annual “Health Insurance Provider Fee,” which represents about 20% of industry pretax profits (see prior post). 

All told, I view this report — and the associated fireworks — in the same light as the fanfare surrounding the healthcare industry’s promise earlier this year to cut $2 trillion in healthcare costs over 10 years (see prior post).  To wit: the report and its hyperbolic assumptions will soon be forgotten.  What we will have to live with for years is the Baucus legislation and all its very real shortcomings.  Perhaps AHIP is already firing the first salvo in the next great healthcare reform debate — the one where the nation moves another step closer to single-payer healthcare or a highly regulated public-private insurance market.  See you then.

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4 Responses to PWC Report and AHIP’s Motives

  1. [...] will never make it to a vote in the Senate?  I have no idea.  But with industry lobbyists gearing up for a fight, this isn’t nearly the end of the reform saga.  The sound you hear is great [...]

  2. Howard says:

    If Ezra Klein is someone you consider a “healthcare expert”, I have to seriously question your judgement. Why would PWC put their reputation on the line? Until there is actually a bill to read (HR 3200 is the closest thing), you have no idea just how much this will cost and how it will be paid for. Also note that in the Finance Committee “outline” of a bill, they begin collecting these “taxes” immediately, but the “program doesn’t begin until 2013. The surplus the CBO reports doesn’t take the extra 3 years of spending into consideration. Where does the “expert” Klein discuss this?

  3. Howard,

    Thanks for your comments.

    The question at hand is whether the Baucus bill will result in the type of premium increases the PWC-AHIP study suggests. My point — and the point of the other people I quote — is that the assumptions of the report make its projections exaggerated; albeit some of the concerns are very real.

    Your argument seems to be 1. No one really knows how much the Baucus bill will ultimately cost (I agree); 2. The taxes/fees on health plans aren’t fair (That’s debatable); 3. The surplus projected by CBO is questionable (I’ll defer to CBO, but acknowledge the credibility of your skepticism).

  4. Edward Lipchus says:

    There are several things people don’t see regarding healthcare. The most prominent is that, while capitalism is wonderful for many things – cars, computers, furniture, etc., it does not work for other things. And healthcare is one of them.

    For a capitalistic market to work, you must have many vendors available to a knowledgeable consumer. Neither of these conditions apply. First, care is increasingly provided by medical associations such as Partners Healthcare in Boston. Second, the consumer cannot be knowledgeable. There is no way a lay person can understand the implications of a given treatment. Third, at the moment you need medical care, you are either sick or injured. If you have a sucking chest wound, you do not have the option of which doctor treats you or even which hospital you go to, regardless of their outcome statistics for your medical need.

    And if you look at the economic incentives, the ideal is not to get you healthy, but to get you healthy enough so that you can continue to pay the bills but still sick enough to need medical care. I know this is hyperbole, but it _is_ the way the system is set up. And this _is_ the model pharmaceutical companies are following with “lifestyle” drugs such as Viagra and Yaz.

    Universal healthcare, otoh, resolves most of these problems. The economics are clearly set up to make you fully healthy. You have freedom to choose your doctor – if every doctor is part of the same organization, to them it doesn’t matter who you see. Which, in fact, is the way it works in England and France – you get assigned to a doctor, but it’s the doctor of your choice.

    And as far as economic efficiency goes, the administrative overhead for private health insurance companies is on the order of 15 to 20%; the overhead for Medicare is under 5%.

    Last, yes, universal healthcare _will_ mean that healthcare is rationed. Otoh, it is rationed here right now – rationed based on what you can afford to pay. Personally, that makes me very uncomfortable. Plus, if you want treatment outside of what the system will provide for you, you always have the option of doing it the old-fashioned way – paying for it yourself.

    Plus, if you lose your job, or get a long-term illness, or start a new job, you know you and your family will still be protected.

    So, to sum up, universal single provider health care provides better care, with better outcomes, for a lower cost, with greater personal choice than the current system does or even can provide. Why is this a problem for people?

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