June 10, 2009
One in an occasional series on healthcare reform.
Some may find it hard to believe that the U.S. health insurance industry supports making major changes to the nation's healthcare system.
The industry, after all, scuttled President Clinton's healthcare overhaul bid with ads featuring "Harry and Louise" fretting about change.
But this time, it turns out, the health insurance industry has good reason to support at least some change: It needs it.
Private health insurance faces a bleak future if the proposal they champion most vigorously -- a requirement that everyone buy medical coverage -- is not adopted.
The customer base for private insurance has slipped since 2000, when soaring premiums began driving people out. The recession has accelerated the problem. But even after the economy recovers, the downward spiral is expected to continue for years as baby boomers become eligible for Medicare -- and stop buying private insurance.
Insurers do not embrace all of the healthcare restructuring proposals. But they are fighting hard for a purchase requirement, sweetened with taxpayer-funded subsidies for customers who can't afford it, and enforced with fines.
Such a so-called individual mandate amounts to a huge booster shot for health insurers, which would serve up millions of new customers almost overnight.
"I think that's why we've seen the industry basically trying to play the administration's game," said Jane DuBose, an analyst with industry tracking firm HealthLeaders-InterStudy. "They really could be licking their chops over the potential here."
The industry says its interest in change flows not from narrow self-interest but from broader concerns.
"What's driving this is we have 47 million people who don't have access to the system, who get help through emergency rooms, and that results in higher costs and inefficient care," said Robert Zirkelbach, a spokesman for industry trade group America's Health Insurance Plans. "There's both a social and economic reason to get everybody in the healthcare system."
Jay Gellert, chief executive of Woodland Hills-based Health Net, said industry support for certain changes is driven by "a recognition that public frustration with many of the problems in the system [is] increasing pretty significantly. So I think there's as much of a commitment to this because we've seen other industries where they haven't dealt with issues early enough, like financial services and auto, and that's not a happy place."
Still, industry observers say, private insurers need the government's help to transform some of the nation's 45 million uninsured residents into paying customers.
Private insurers lost an estimated 9 million customers between 2000 and 2007. In many cases, people lost coverage because they or their employers could no longer afford it as premium increases outpaced wage growth and inflation.
Recession job losses are adding to the toll. Some economists estimate that every percentage-point increase in the jobless rate adds 1 million people to the ranks of the uninsured.
The industry's real trouble begins in 2011, when 79 million baby boomers begin turning 65. Health insurers stand to lose a huge slice of their commercially insured enrollment (estimated at 162 million to 172 million people) over the next two decades to Medicare, the government-funded health insurance program for seniors.
"The rate of aging far and away exceeds the birth rate," said Sheryl Skolnick, a CRT Capital Group healthcare investment analyst. "That's got to be very scary. . . . This is the biggest fight for survival managed care has ever faced, at least since they went bankrupt in the late '80s."
With Democrats in power and public sentiment in favor of change, the industry can't afford to flatly oppose it, said Julius Hobson, a Washington lobbyist for hospitals and insurers with the law firm Bryan Cave.
"This time, you get the sense something is going to happen," he said. "So to stand up and just say no is probably not wise, because politically you could get run over."
For insurers, getting "run over" would be the adoption of a so-called single-payer plan, in which the government pays all medical bills. Such a plan, though widely viewed as politically unfeasible this year, would wreak havoc on the private insurance market.
The best way for the industry to preserve the private insurance market -- and derail the campaign for a single-payer system -- may be to go along with more palatable proposals on the table now, said Jeffrey Miles, a healthcare analyst and president of the Miles Organization, a Los Angeles insurance brokerage firm.
"If healthcare goes down this year, you are going to end up with single-payer care much sooner than anyone expected," he said.
But there is a limit to how much change the industry will abide. It draws the line at proposals, supported by President Obama and others, to offer consumers a public insurance alternative to private coverage.
The idea is that consumers could buy into a government-run health plan, such as or similar to Medicare or the federal employees insurance program.
Proponents say that if consumers are required to buy coverage, it is only fair to give them a public option.
In a recent letter to Senate Finance Committee Chairman Max Baucus (D-Mont.), for example, Jerry Flanagan of the Santa Monica-based advocacy group Consumer Watchdog wrote that adopting an individual mandate without a public alternative would amount to "a bailout for HMOs -- whose greed, waste and indifference to our health have created the current mess."
The industry fears that the government would force lower fees on hospitals and physicians, enabling a public health insurance plan to offer consumers a better bargain.
That, they say, would make it hard for private companies to compete for customers. Insurers also fear that a public option could easily be converted later into a single-payer healthcare system.
Health insurers don't see a public plan "as the nose of the camel under the tent; they see it as the front half of the camel under the tent," said Robert Laszewski, a former insurance company executive and industry consultant.
"They are interested in 45 million new customers," he said, "but the first thing in everybody's mind is preserving their right to do business in a way that can be profitable and meet shareholder needs."
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