In the past, the insurance industry’s power has been a major barrier to health-care reform. Most notably, the industry paid for the infamous “Harry and Louise” ads that helped kill the Clinton plan. But times have changed.
Last weekend, the lobbying organization America’s Health Insurance Plans, or AHIP, released a report attacking the reform plan just passed by the Senate Finance Committee. Some news organizations gave the report prominent, uncritical coverage. But health-care experts quickly, and correctly, dismissed it as a hatchet job. And the end result of AHIP’s blunder may be a better bill than we would otherwise have had.
For 2009, it turns out, is not 1993. Once again, Republicans have tried to kill reform with smears and scare stories. But all they seem to have killed with their cries of “socialism” and warnings about “death panels” is their own credibility. Some form of health-care reform is highly likely to pass.
So it’s a different game than it was 16 years ago. And it’s a game that the insurance industry apparently doesn’t know how to play.
The motivation for the AHIP report seems to have been the decision by the Finance Committee to weaken the penalties for individuals who don’t sign up for insurance, even as it retains regulations requiring that insurers offer the same policies to everyone, regardless of medical history. The industry worries that some people will game the system, remaining uninsured as long as they’re healthy, then signing up when they get sick.
This is, believe it or not, a valid concern. Many health-care economists believe that a strong individual mandate, requiring that almost everyone sign up, will be needed to make health reform work. And the Finance Committee probably did weaken the mandate too much.
But AHIP, apparently unable to help itself, didn’t stop there. Instead, the report threw every anti-reform argument the authors could think of at the wall, hoping that something would stick.
One argument was particularly striking: the claim that attempts to limit Medicare spending would lead to higher insurance premiums. In fact, the report assumes that 100 percent of any reduction in Medicare payments to hospitals will translate into higher costs for patients with private insurance.
The only way to justify this claim is to assume that all hospitals are purely charitable institutions, charging as little as they possibly can. Now, some hospitals may fit this description. But all of them?
What’s more, this argument stands the usual logic of markets on its head: if you believe AHIP’s story, competition raises prices instead of reducing them. And it doesn’t matter where the competition comes from: anyone who gets a better deal, whether it’s Medicare or a private insurer, makes life worse for everyone else. I don’t believe that, and neither should you.
Of course, the report doesn’t mention these implications. The only bad competition it talks about is competition from the government. Specifically, it claims that a public insurance option would be a bad thing — not because it would be inefficient, but because the public plan would negotiate better prices. Isn’t that an argument for, not against, such a plan?
Which brings us to the ways in which AHIP may have done health reform a favor.
As I said, the individual mandate probably should be stronger than it is in the Finance Committee’s bill. But there’s a reason the mandate was weakened: fear that too many people would balk at the cost of insurance, even with the subsidies provided to lower-income individuals and families. So why not address that cost?
Aside from making the subsidies larger, which they should be, there are at least two changes to the legislation that would help limit costs. First, health exchanges — special, regulated markets in which individuals and small businesses can buy insurance — can be made stronger, in effect giving small buyers a better bargaining position. Second, the public option — missing from the Finance Committee’s bill — can be brought back in, giving private insurers some real competition.
The insurance industry won’t like these changes, but that matters less than it did a week ago.
There’s also another point, which House Speaker Nancy Pelosi has stressed. Part of the opposition to a strong individual mandate comes from the sense that Americans will be forced to buy policies from a greedy insurance industry. Giving people, literally, another option — the right to buy into a public plan instead — would defuse that opposition.
Even with stronger exchanges and a public option, health reform would probably increase, not reduce, insurance industry profits. But the insurers wanted it all. The good news is that by overreaching, they may have ensured that they won’t get it.