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Friday, October 16, 2009

Industrialized Extortion

Marlon Brando in 'The Godfather'When America's Health Insurance Plans (AHIP) issued a report stating saying the insurance industry would absolutely have to raise premiums if healthcare reforms go through, the result was probably less pro-industry than they had hoped it would be. So transparently self-serving and flawed as to be almost comic, the AHIP study's impact on the process was zero. In fact, the Senate Finance Committee passed their bill -- the very next day -- with one Republican vote. Finally, even the firm who wrote the study, PricewaterhouseCoopers, admitted that the study was flawed -- they were instructed to ignore certain provisions, which rendered PricewaterhouseCoopers's report less than predictive.

"America's Health Insurance Plans engaged PricewaterhouseCoopers to prepare a report that focused on four components of the Senate Finance Committee proposal: -- Insurance market reforms and consumer protections that would raise health insurance premiums for individuals and families if the reforms are not coupled with an effective coverage requirement," the firm wrote in a statement.

"The reform packages under consideration have other provisions that we have not included in this analysis. We have not estimated the impact of the new subsidies on the net insurance cost to households. Also, if other provisions in health care reform are successful in lowering costs over the long term, those improvements would offset some of the impacts we have estimated."

In other words, AHIP made sure the firm they hired would predict the gloom and doom scenario they wanted.

Apparently unwilling to learn from AHIP's PR debacle, Blue Cross Blue Shield Association (BCBSA) has released their own study and -- lo and behold -- it reaches similar conclusions. If healthcare reform goes through as many of the bills are, premiums will shoot through the roof.

Why? Because it won't have an individual mandate -- i.e., a requirement for all Americans to buy insurance. This would be a massive giveaway to the industry and any benefit of the requirement would be questionable. "In the absence of a strong individual mandate, young and healthy people will opt out and/or try to game the system," BCBSA warns, "driving up premiums for everybody else."

"What's the end result?" asks The New Republic's Jonathan Cohn. "According to the report, these flaws mean premiums will jump by more than 50 percent. (A lot more, actually, depending on how you do the math.) Yowza!"

If your wondering why these "inevitable" increases in premiums aren't just extortion, welcome to the club.

"Can someone please explain to me why this isn't a blatant threat? Nice little health care system you have here. Be a shame if anything happened to it," writes blogger Digby at Hullabaloo. "In a normal country, this kind of corporate threat, in which they openly say that unless they get their way, they will raise premiums sky high and make everyone suffer, would be considered criminal. After all, premium pricing is entirely in their hands --- and that's why we are in the terrible situation we are in today."

Both the AHIP and BCBSA studies have people wondering about the possibility of price-fixing, which isn't all that legal. If reform goes through without an individual mandate, then insurance companies have an excuse -- complete with cover provided by these studies -- to jack up premiums. One way or another, healthcare reform is going to be good for the insurance industry. If it's not so good for you, who cares? It's not like they give a damn about consumers now. Other industries aren't able to get away with this kind of thing and their moves have some in Washington looking at the provision that allows it.

Huffington Post:

House Speaker Nancy Pelosi (D-Calif.) increased Democratic pressure on the health insurance industry Thursday, telling reporters that there is "tremendous interest" in the House in revoking the industry's anti-trust exemption.

The insurance industry recently declared war on the Democratic health care reform proposal, releasing two reports claiming that the proposal would raise the cost of premiums. Democrats hit back hard and independent analysts said that the reports cherry-picked data and ignored relevant portions of the proposal.

Democrats are also fighting back legislatively. "There is tremendous interest in our caucus, and, in fact, the Judiciary Committee has had a hearing on ending the exemption to McCarran-Ferguson, the antitrust bill," Pelosi said, unprompted, at her weekly press conference.

"The health insurance's antitrust exemption is one of the worst accidents of American history," agrees Sen. Chuck Schumer. "It deserves a lot of the blame for the huge rise in premiums that has made health insurance so unaffordable. It is time to end this special status and bring true competition to the health insurance industry."

Price fixing and gouging are only possible either in collusion with other companies in the industry or in the absence of competition. In many states, competition among insurers is entirely theoretical. "In the state of Maine, Wellpoint controls 71% of the market," Huffington Post reported in September. "In North Dakota, Blue Cross controls 90%. Using the Herfindahl/Hirschman Index, a metric for market concentration, a 2007 study by the AMA found almost every health insurance market in the United States is highly concentrated [PDF]."

So, by releasing these threats/studies, the health insurance companies has highlighted one of the biggest -- and previously overlooked -- problems with the industry; anticompetitive and monopolistic practices. I'm going out on a limb and guessing that probably wasn't the plan.

Still, if we remove the anti-trust exemption that insurance companies enjoy, we still have to enforce the anti-trust laws we have. And that's not something we've been doing lately. In a nation with decent anti-trust enforcement, no one would ever use the phrase "too big to fail." Without a commitment to go out and do some actual trust-busting, this is Washington answering a threat with a threat. The problem would be that Washington's threat is an empty one, while there's no reason to doubt the industry's threat is sincere.

AHIP and BCBSA may have shot themselves in the foot with their studies, drawing a big red circle around their own anti-trust exemption. But removing that exemption -- at least the way government oversight works today -- would be a symbolic gesture.

We have to start policing corporations or any reform of any industry would be meaningless. This applies to Blue Cross Blue Shield and this applies to AIG. When we start busting trusts and pulling apart monopolies, we'll probably find that half the job of reform -- regardless of the industry -- is already done.


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sofa said...

Gov't is about influence peddling and corruption - so every solution gets worse and worse and costs more and more.

A free market and Tort reform restores market forces; problem solved.

Show one instance where gov't dictated health care isn't massively in debt and provides horrible service. Gov't regulation of insurance industry is what drives up the costs today. History teaches that gov't is not a solution, it is just an expensive problem.

Markets work. History proves it. Businesses like insurance companies are made to react top market forces and refine their products, and prove to consumers that they work. People choose well when they control their own money and pick their own plan.

sofa said...

Market forces work, if you let them.

"Medicine is the keystone in the arch of socialism."
- Vladimir Lenin

It's not about health care, it's about control.

Gov't run health care has failed everywhere, in every nation, horribly, in all times. Wishing doesn't change that.