Insurers in Crosshairs of U.S. Health Care Reformers

By | August 11, 2009

The debate over reforming the U.S. health care system has zeroed in on one main target: insurance companies.

Democrats and the Obama administration plan to spend August battling to win popular support to expand health care coverage as the insurance industry mobilizes an advertising campaign to criticize the cost and scope of a major overhaul. Insurance companies have become the bull’s eye for reform advocates looking for a target for ballooning U.S. health care costs.

“Every great legislative debate needs a villain and it was only a matter of time before the debate grew so intense that insurers were highlighted as the enemy,” said Paul Heldman, an analyst with Potomac Research Group.

The fight could ultimately decide if President Barack Obama makes good on his pledge to expand health care coverage to about 46 million Americans now lacking it.

Democrats are pointing directly at insurers, with Obama discussing “health insurance reform” rather than simply health reform. House of Representatives Speaker Nancy Pelosi recently ratcheted up the debate, calling insurers “almost immoral” and “villains.”

If one asks “the public, the medical community, the Congress (who are) the No. 1 people who mess up the health care system, they’ll tell you: the insurance companies,” Sen. John Rockefeller, a West Virginia Democrat, told Reuters. People are “being taken advantage of. That’s not all insurance companies, but insurance companies as a whole. That’s what they do.”

A Quinnipiac poll last month found 69 percent of U.S. voters back government-run insurance even though most people who already have coverage said they were at least somewhat satisfied with it.

Several Democratic-written proposals call for changes that could impact the industry, including a government-run public option that Obama has said is needed to “keep the insurance companies honest.” Insurers could also see taxes slapped on deluxe plans sold to corporate executives and cuts to private Medicare plans known as Medicare Advantage.

Senate Democrats, working with the White House, have secured cost-cutting deals with hospitals and drugmakers. But hope of an agreement with insurers has faded.

“A campaign has been launched to demonize health plans,” Karen Ignagni, chief executive of America’s Health Insurance Plans, told reporters.

“The same old Washington politics of ‘find an enemy and go to war’ is a major step backward, not a step forward,” said Ignagni.

Her group represents Aetna Inc, WellPoint Inc, Cigna Corp, UnitedHealth Group Inc and others.

The insurance group has launched a national cable television advertising campaign in August, but a spokesman declined to say how much it plans to spend.

Longing for Bush Era

The political brawl is a far cry from the recent Bush administration, when Republicans looked to insurance companies to help provide health care at lower costs.

Rather than expanding the federal Medicare program for the elderly and disabled to cover prescription drugs, in 2003 the Republican-led Congress allowed insurers to provide private drug plans for Medicare patients with government oversight.

Republicans “saw insurers as the way to bring market reforms to government-run health care. The Democrats are the complete opposite … They’re distrustful of the insurers,” said Potomac Research’s Heldman.

To be sure, health insurers are ripe targets with tens of billions of dollars in annual revenues.

Last year, UnitedHealth took in about $81.2 billion in revenues and WellPoint saw nearly $61.6 billion, with Aetna taking in nearly $31 billion and Cigna about $19.1 billion.

As for profits, however, the companies see far lower figures.

Publicly-traded insurers saw more than $11 billion in profits overall in 2008, according to Oppenheimer & Co’s Carl McDonald, who follows the managed care industry.

“For some perspective, the five largest U.S. pharmaceutical companies reported net income in 2008 of $35 billion … it took these five companies just over three months last year to generate the same amount of profits as the entire health insurance industry did for the whole year,” he said in a note.

Still, in addition to rival public plans and exchanges, insurers are likely to see significantly more regulation.

“We’ve been discussing in specific terms what health insurance reform will look like for American families and one of the most important benefits will be ending the discrimination, dropping and coverage gaps that riddle today’s health insurance system,” White House spokesman Reid Cherlin said.

Despite the political feuding, insurers still stand to benefit from a wider pool of customers if Congress sticks with proposed mandates on individuals and possibly employers. They could see other gains too, in terms of expanded coverage of the poor through the joint federal-state Medicaid program for the poor and more customers overall, even with more regulations and lower reimbursement.

“It becomes a volume game for them,” said Beth Mantz Steindecker, a health care analyst for Washington Analysis Corp.

Insurance company stocks, which took a hit when the debate began earlier, have seen some rebound. The S&P Managed Health Care index of large U.S. insurance companies is up about 10 percent this year, slightly underperforming the wider S&P index.

Verbal barbs are likely to continue between the industry and Democrats until Congress reconvenes in September, but a compromise is eventually likely, said Steindecker, who foresees the final bill from Congress dropping a rival public insurance plan in favor of cooperative exchanges and heavy regulation.

“At the end of the day, they both realize they need the insurance industry on board,” she added. (Reporting by Susan Heavey; additional reporting by Patricia Zengerle; editing by Andre Grenon)

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