Health Insurers Threaten Rate Hikes

Reprinted from Consortium News

Though looking forward to millions of new customers who would be compelled by the U.S. government to buy health insurance, the insurance industry is threatening to raise premiums across the board if more of its demands are not met.

Industry representatives put Congress and the Obama administration on notice that if health-reform legislation doesn't send even more new customers the industry's way or if a windfall profits tax is included, the industry would hit businesses, individuals and the government with higher premiums, effectively defeating one of the initiative's top goals, reining in ever-rising costs.

The industry's chief complaint, which was raised in connection with an already-industry-friendly bill cobbled together by Senate Finance Committee chairman Max Baucus, is that the legislation would push 29 million more Americans into the insurance market, but that they might be the sickest and thus costliest people.

The industry wants more of the estimated 25 million still uninsured â€" especially healthy, young people â€" to be compelled to buy policies, too. Without more healthy customers added to the mix, the industry says it will have no choice but to raise rates.

"The consequences of this would be an upward spiral; rate shock to everyone who stays in," Karen Ignagni, president of the industry group America's Health Insurance Plans, told the Washington Post. "This legislation will fail the test of affordability for individuals." [Washington Post, Oct. 9, 2009]

The industry's warning comes after its lobbyists won an important victory in the Senate Finance Committee, defeating amendments that would have added a public option, a government-run program that would compete with private insurers to hold down costs.

Private insurers also bristled at an idea floated by House Speaker Nancy Pelosi, a windfall profits tax on extra money the industry might make from the influx of millions of new customers, many qualifying for government subsidies.

Robert E. Zirkelbach, a spokesman for America's Health Insurance Plans, told the New York Times that a tax on windfall profits "would lead to higher premiums for families and businesses" because the added expense would be passed through to customers. [NYT, Oct. 9, 2009]

However, it was not clear why insurers would worry about a windfall profits tax if they were also concerned that new customers would be a financial burden.

Still, by the industry throwing its weight around with threats of higher premiums, it may be risking a backlash from Congress, which could still turn to the public option as the only feasible method for constraining ever-rising health insurance costs.

The industry fears the public option because it could piggyback on the existing Medicare bureaucracy and thus save substantial money, which the insurance industry spends on administrative expenses, executive pay and profits.

Those costs eat up 20 percent or more of an average dollar that businesses and individuals spend on health insurance premiums, compared to about 2 percent for Medicare.

The latest threats suggest that industry lobbyists believe they have enough senators lined up to back a Republican filibuster and block the public option, although some congressional liberals contend that some form of the public option, which is contained in four other committee-approved bills, still has a decent chance of winning final congressional approval.

But Democrats especially have reason to worry, because if they enact a reform package without the public option â€" and insurers then jack up rates â€" Democrats could be blamed for the unintended consequence of higher costs and thus pay a steep political price at the polls.

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