Insurance industry P.R. offensive falls flat

Merrill Goozner is an award-winning journalist and author of “The $800 Million Pill: The Truth Behind the Cost of New Drugs” who writes regularly at Gooznews.com.

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The health insurance industry’s last-minute effort to toughen penalties on people who refuse to buy health insurance appears to have fallen flat. Democrats are rallying around reform now that an enemy has marched onto the field of battle. The PriceWaterhouse study commissioned by America’s Health Insurance Plans, the industry trade group, may well be remembered as the Pickett’s Charge of this year’s health care reform battle.

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For an economic analysis of the shortcomings in the study, Jon Cohn of the New Republic’s Treatment blog is highlighting a quick response analysis by health care economist Jon Gruber of the Massachusetts Institute of Technology (who was one of the key architects of that state’s insurance exchange, which is the model for all the health care reform bills now making their way through Congress). However, as Cohn points out at the end of his post, it hasn’t answered the key charge leveled by AHIP: that reform will raise insurance rates for most of the already insured because not everyone will be in the pool.

Here’s the question I want answered. For years, providers like hospitals and physicians have said they raise their prices to cover the cost of uncompensated care given the under- and uninsured. This “hidden tax” was said to be a major contributor to rapidly rising insurance premiums. If true, isn’t that hidden tax going to be reduced to the extent anyone is covered by the new law (which raises taxes and penalties to pay for that new coverage)?

Let’s assume that the new law only covers half the uninsured. If they are the sickest people in the uninsured pool, as the insurance industry fears, their claims will be far in excess of the average premium paid to insurers. But the providers — the hospitals, physicians, drug companies, et al — will now be collecting money from the insurance industry for this previously uncompensated care. To the extent anybody who previously received uncompensated care is now is covered (especially the sickest uninsured patients most likely to buy coverage under the new law), providers should be able to lower their prices for the same services delivered to the already insured.

Indeed, that’s the insurance industry’s job — to make sure those rates go down. It seems to me that by claiming as they do with this PW report that rates will automatically rise because some people won’t buy insurance is an admission by the insurance industry that it isn’t up to the task of doing what it is paid to do: negotiating fair rates from providers on behalf of its customers, the hundreds of thousands of American employers who do provide their workers and their families with health insurance coverage.