Their Own Worst Enemy


For months, the insurance industry was remarkably quiet. Despite fears that it would publicly fight reform with a scorched-earth campaign of television ads like it did in 1993, until now it's been subdued. It was part of a carefully planned inside-outside strategy: On the outside, the industry constantly stressed its support of reform, while noting that it objected to some of reform's potential components, like the public option. On the inside, it was furiously lobbying to make sure the bill would maximize its profits and minimize its costs.

Outside the halls of Congress -- and even inside those halls -- few took notice. Until last week, when the industry's lobbying group, America's Health Insurance Plans (AHIP) released a study it had commissioned attacking the bill about to be passed by the Senate Finance Committee. They claimed the bill would increase costs, resulting in skyrocketing premiums for consumers. The report was quickly eviscerated for its methodological howlers, including the fact that it pretended that the subsidies the bill grants to low- and middle-income Americans didn't exist.

Even apart from its dubious merits, as a political matter the study was remarkably foolhardy, because it pretty much signaled the end of the idea that insurers are cooperating with reform. It also made liberals really mad, and in response they started talking about things like revoking the insurance industry's antitrust exemption. It emboldened public-option advocates, who now say they have proof that the industry has no intention of stopping the feverish pace of rate increases. "In a strange way, and look, obviously they didn't mean this," said Rep. Anthony Weiner, a Democrat from New York and a strong advocate of a single-payer system. "The health-insurance lobby today fired the most important salvo in weeks for the public option, because they have said, as clear as day, left to their own devices, according to their own number-crunchers, they're going to raise rates 111 percent."

Nancy Pelosi suggested that a strong public option (the industry's greatest fear) ought to be the price for including an individual mandate (the industry's most fervent wish) in the final bill. President Barack Obama himself abandoned his rhetoric of inclusion to attack the insurance companies in his weekly Internet address.

So what happened? The problem the insurance companies are facing is that their prior approach -- say you want reform but quietly work against the portions you don't like -- worked well enough as long as "reform" was a nebulous and confusing mass of proposals coming from a dozen different directions. But once "reform" becomes an actual bill -- and in terms of public debate "reform" was the Senate Finance Committee bill -- if you launch an attack on that bill, then you become a clear opponent of reform, and nobody believes anymore that you're operating in good faith.

The insurers also face another problem, which is that because our system revolves so heavily around private insurance, many predictions of doom ultimately come down to the assertion that the insurance companies themselves will be doing something bad. If they predict that premiums will go up, what they're saying is, "We're going to raise your premiums!" If they predict that too many people will remain uninsured, they're saying, "We'll refuse to insure lots of people!"

What makes our health-care system unique in the developed world is the importance of insurance-company profits (and to listen to some Republicans talk, you'd think these profits were some kind of public good that must be maintained at all costs). The problem isn't the total dollar cost these profits impose on the system; it's the way the search for profits determines the companies' behavior. If you want to predict what insurance companies will do in a post-reform future, just look at where their interests and incentives lie. Unfortunately, past experience demonstrates powerfully that human morality is not a constraint on their behavior. That's why one of the key components of reform is curbing their abuses: denying people coverage because of pre-existing conditions, charging women higher premiums than men and refusing to pay for maternity care, hitting people with lifetime limits that so often turn a serious illness into a bankruptcy, and cancelling people's coverage when they get sick, to name a few.

It appears that if reform passes, these particular practices will no longer be legal. That's a good thing, but anyone who thinks that insurance companies will stop treating their customers like dirt ought to think again. What all those abuses have in common is this simple fact: Every dollar insurance companies pay for care is a dollar that won't show up as profits. So they do everything in their power to pay for as little care as possible. Insurers are in a constant effort to reduce their "medical losses," which is what they call it when they actually pay for your care.

The fact that some of their most egregious abuses will be outlawed won't change that calculation. I can confidently make this prediction: Just as a few years ago, no one had ever heard of "rescission" (throwing people off their insurance when they get sick), a few years from now we'll learn about a new insurance-industry practice or two, just as repugnant, by which the companies will avoid paying for people's care. I wouldn't be surprised if they've already got their most creative people working on the problem right now.

This is why advocates of a public option, including the White House, argue that it would "keep the insurance companies honest" by offering some real competition, a place people can go if they aren't happy with what they're getting from UnitedHealth or Aetna or WellPoint. It might. But it would also simply give people who don't trust the insurance companies a choice.

There are some people -- let's take Newt Gingrich as an example -- who would never dream of joining a government health-care plan. Newt won't be selecting the public option if it's available -- he doesn't trust government and would rather put himself in the hands of the free market. Fair enough -- Newt ought to have that choice. But there are plenty of other people who feel exactly the opposite. They just don't trust for-profit insurance companies and won't ever feel secure so long as they're getting their health coverage from an entity whose essential purpose is generating profits, not providing care. There is ample evidence to support that conclusion. If more and more members of Congress are asking themselves why people shouldn't have that choice, the insurers have no one to blame but themselves.

Update: The original version of this column suggested that Newt Gingrich would be signing up for Medicare when he turns 65. In fact, the youthful-looking Gingrich is already 66 years old. We asked Gingrich's spokesperson whether or not he has signed up for Medicare; when we receive a reply, we will post the answer here.

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