Differing Notions of ‘Affordability’

Insurers want more premiums but they don’t really want to expand coverage.

For the first time in a long time, my former insurance colleagues and I agree on something: it’s time for affordability.

Health insurers’ big PR and lobbying group, America’s Health Insurance Plans, has launched a slick new campaign, complete with compelling graphics and pithy sound bites, to persuade lawmakers that they need to take immediate action to prevent insurance premiums from going up more than usual.

But while we agree that lawmakers do indeed need to focus on affordability, we disagree on what they should do. Insurance executives want Congress to get rid of some of the most important consumer protections in the Affordable Care Act, a.k.a. ObamaCare. I believe it’s time to focus on the value—or lack thereof—that private health insurance companies actually add to our health care system.

Several years ago, a coworker asked our CEO during a staff meeting what kept him up at night. He responded with a single word: disintermediation.

Merriam-Webster defines disintermediation as “the elimination of an intermediary in a transaction between two parties.” So what my boss was saying was that sooner or later, Americans might reach the conclusion that private insurers are no more essential than travel agents (remember them?), and that by dispatching health insurers to the history books, we could reduce spending on health care by billions if not trillions of dollars.

Much of what I was paid to do in my former job was to create and perpetuate the impression that insurers are “part of the solution” and “add value” to the system. I put those words between quotation marks because they were used repeatedly by my CEO and other industry leaders and became our mantras, especially in conversations with policymakers and the media.

In addition to always working those words in our communications, we tried not to miss an opportunity to point the finger of blame for escalating health care costs at others: greedy doctors and hospital executives; medical device manufacturers, inventors of new whiz-bang diagnostic tools and even patients who demand the latest and most expensive drugs. They and the fact that our population is aging are the real “drivers” of health care costs, insurers insist.

Okay, they have a point. We are getting older. And the prevailing means of paying for care in this country creates the perfect environment for overtreatment. But to hear insurance company executives tell it, they are blameless.

That’s certainly the case in the industry’s new “Time for Affordability” campaign, which targets provisions of the health care reform law that have the greatest potential of doing harm to insurers’ bottom lines.

Here’s the world as AHIP sees it: “The Affordable Care Act (ACA) will help millions of people get coverage for the first time, but the new health insurance tax, costly benefit requirements and age rating restrictions will drive up the cost of coverage for many consumers and employers. When this happens, many younger and healthier Americans could decide not to get coverage, which would further drive up costs for everyone else.”

If you think insurance firms are only—or even primarily—interested in holding down the cost of coverage for younger and healthier Americans, you are buying the spin I used to crank out.

Here’s the real reason for AHIP’s campaign: insurers love the part of ObamaCare that requires us to buy coverage from them because it means billions of dollars in new revenue for them. But they don’t want to part with a penny of that money to help expand coverage to more Americans and they don’t want to be prohibited from discriminating against older and less healthy people. And those are some of the things that the Affordable Care Act will do when it’s fully implemented next year, and that means their profit margins and return on equity likely will take a hit.

In other words, thanks for the billions, but we and our shareholders—and Wall Street financial analysts—can’t tolerate being asked to share in the cost of making affordable care available to the uninsured, aging and sick among us.

We will not hear in their “Time for Affordability” campaign that insurers have failed miserably at controlling costs, which supposedly is their raison d’être. Over the past ten years, according to the Kaiser Family Foundation, average premiums have increased 97 percent, much more than inflation (28 percent) and wages (33 percent).  Premiums have also increased much more than medical inflation, which according to a recent Standard and Poors study totaled 48 percent between 2000 and 2010.

Meanwhile, insurance corporations continue to make Wall Street-pleasing profits. UnitedHealthcare announced last week that it made $9.3 billion in profits in 2012.  That’s just one of the 1,300 health plans AHIP says it represents. UnitedHealth used a third of that—$3.1 billion—to repurchase its own stock last year, which had the effect of boosting earnings per share for stockholders.

Yes, insurers, it is time for affordability. And time for us as a country to take a good look at why we need to keep you around.

Wendell is a Senior Analyst at The Center for Public Integrity where this first appeared on 1/21/2013.

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3 thoughts on “Differing Notions of ‘Affordability’”

  1. So what would happen if customers of health insurance companies were to become stock holders as well? As a long distance runner and someone who is forced to buy insurance but is not able to use it for running injuries because those dollars are needed by people with sedentary life style related issues….20 pages of griping.
    Seriously, what would happen if customers were also stock holders? What would happen if health insurance companies were formed for people with certain types of life styles?

  2. Thank you Mr. Potter for all you’ve done to educate us.

    I clicked through to AHIP and then the CBO link from November 2009 they gave. After finally finding the information pertaining to my situation, I also read your piece about the Chamber and stop-loss coverage over on The Center for Public Integrity.

    My first concern was that I have low income, but cannot use Medicaid as I would have to empty my savings to qualify. No savings means I can’t pay my property tax. I refuse to lose my house to health insurers if I can help it.

    I finally found in a footnote that people in my situation would be ineligible for subsidies; however, it seems I can buy insurance on the exchange without subsidy but with a cap of somewhere between 2 and 5% of income. So, I guess that relieves some of my fear over this.

    The bad news is, as you wrote about in the other piece, is that all the monied interest are still busy carving out deals for themselves. I feel certain that if in 2014 I get a remotely reasonable deal, it will be lobbied away in future years.

    Whether I can obtain insurance, though, Washington seems oblivious to the fact that an actuarial value of 60% still leaves people like me completely exposed to bankruptcy, to losing everything including my home. How legislators can congratulate themselves for solving healthcare affordability is beyond my comprehension.

    Wanted to let you know, though, I appreciate your efforts for real reform.


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