Corporate Research Group’s Weblog

America’s Health Insurance Plans comments on the recent Congressional Budget Office analysis of the likely impact of healthcare reform on premiums.

Subsidies do not lower premiums:  Subsidies are essential to helping low- and moderate-income families afford health care coverage.  But in the same way that Pell Grants do not lower the cost of college tuition, subsidies do not reduce underlying medical costs. 

That is true, but in fairness you do get a college education — and that’s a good thing.

In a prior post, I quoted the view of the Congressional Budget Office that “the fact that private insurers pay providers higher rates, on average, than Medicare and Medicaid is not evidence that cost shifting occurs.”  Data presented by UnitedHealth Group during its annual investor conference today yesterday offers the alternative view.

With healthcare reform of some kind a virtual certainty, managed care plans are starting to think about life after.  Some have begun sending out the message to investors that they are ready, well-positioned, laying the foundation, etc., for a post-reform world.  Here are three examples:

• UnitedHealth Group said at its annual investor conference that it will focus on acquisitions in the solid-margin healthcare services arena.  The plan is to move beyond “payer-centric” services and further into consumer-driven healthcare and care delivery, including revenue cycle management and technology consulting.  Officials describe 2010 as a “foundation-forming” year for the post-reform world. 
• Cigna Corp. outlined a new strategy at the company’s annual investor conference – with an emphasis on tightening its U.S. operations, while pushing for growth globally.  That includes expanding its expatriate business and pushing further into health, accident and life insurance in markets like Asia.  The company noted that its business mix makes it well-positioned for healthcare reform, with just 60% of its earnings coming from the U.S.
• Humana chief executive Michael McCallister told The Wall Street Journal that in order to deal with a shifting healthcare landscape the company is eyeing acquisitions in complementary areas, like managing the cost of expensive specialty drugs and chronic diseases such as diabetes.

My previous post titled CBO Analysis on Healthcare Premiums a Slam Dunk for Reform attracted some heated comments from readers.  One from a Mark Edwards reads:

For employers who do not currently provide health insurance but pay higher wages instead (Our average wage for clerical staff is $14.25/hour), the end result of this so called reform will be that our 240 employees will have to accept a reduction in their current salaries or wages in order to off set the cost of the benefit. I seriously doubt that the CBO calculated the cost of lower wages as the trade-off for this healthcare benefit. We will be reminding the staff that the country wanted change and choice. They will definitely get the change but there will be no choice when it comes to their healthcare insurance.

I asked a few economists to comment on the validity of his argument.  Here’s one from Uwe Reinhardt of Princeton that I must confess made me laugh:

Companies that did not sponsor health insurance for their employees had one advantage: when their employees really got sick, they ultimately could rely on the rest of society to pick up the tab for healthcare to the extent that the employees themselves could not pay for it. It is a form of freeloading on the part of the employees.
 
I would assume this to be a small firm with mainly low-wage workers. Any firm with high wage workers will offer health insurance.
 
On the other hand, as the CBO report shows, the availability of insurance through the exchanges should lower the premium for individuals and small businesses.
 
This firm’s employees will lose the choice to remain uninsured, just as they long ago lost the choice to go naked in the street or not to go to elementary and secondary school. It is one of those nasty things that comes with civilization.
 
I personally would prefer a deal in which individuals do have a choice not to be insured but then would have to sign a waiver which gives every doctor and hospital the right to let them die without healthcare, should they fall seriously ill. That would be an actuarially sound system. Perhaps this employer and his employees would prefer that kind a deal to health reform.