In his weekly radio address, President Obama says private health insurance companies are “filling the airwaves with deceptive and dishonest ads.”

Gee, I wonder if the insurers will dishonestly deceive even half the number of people that President Obama did during his address to Congress.

(Cross-posted at Cato@Liberty.)

Just as insurers cherrypick the healthiest individuals to maximize their profits, these same insurers cherrypicked the provisions from health reform legislation to make a bogus argument against reform. Health reform will mean lower costs for families, but the insurance companies directed the reports' authors to specifically ignore the provisions that will lower premiums. The insurers' cherrypicking was so outrageous that the firm that wrote the report went so far to issue a public statement distancing itself from AHIP's use of the findings.

The insurance companies and AHIP are now threatening America.

Their report and its conclusions are completely false, as Ezra Klein and Scarecrow explain, so they're not working with facts here. Rather, they are threatening to raise their rates if health reform hurts their profits.

The insurance industry's complaints come down to a proxy battle - they're attacking the weakened individual mandate provisions and the excise tax in the Senate Finance bill (the one that's a bailout for the very same insurance industry) as a way of attacking health reform in general, as well as an attempt to move the conversation away from the other bills in Congress, bills that do make health care affordable and do have a public health insurance option.

Instead, this report highlights how important it is to tightly regulate this criminal industry and make sure we all have a choice of a public health insurance option, so we're not left at the mercy of big insurance any longer.

As David Dayen explains:

The industry appears to want it both ways: they want to force everyone to buy their insurance, while cherry-picking the healthiest members of the uninsured for themselves, and sacrificing nothing in profits – in fact increasing them.

Insurance companies said that if they don't get what they want - force people to buy their overpriced insurance or pay a high fine - they will raise rates for all of us. It's a bare threat, especially in a country where over half of bankruptcies are caused by their bad practices.

Insurance companies are threatening us with more bankruptcy, attacking our livelihood and our economy, so they can continue with their criminal ways. We need freedom from the insurance industry's monopoly, and the only way we'll get it is with health reform that makes insurance affordable for people, and a public health insurance option to give us the choice to say no to big insurance.

The report released by American's Health Insurance Plans (AHIP) on the impact of health reform on the cost of private health insurance coverage argues that higher costs associated with an individual mandate AHIP considers weak, taxes on high-end policies and health sector industries, and slowed growth in Medicare payments will passed along to the consumer in the form of higher health insurance premiums. This doesn't take into account any of the potential benefits from the structural reforms in the health reform proposals. Instead, this report isolates the impacts of only a few provisions, while ignoring many others, such as coverage of the uninsured, insurance market reforms, and consumer protections, which would elicit savings that would more than offset the costs of these specific provisions for insurers and households.

Additionally, the analysis is based on the assumption that the projected growth in the cost of health care services is a given, so Medicare reforms designed to control costs represent underpayment. Yet, a major health reform objective is to slow projected health care spending. With the structural changes that all of the health reform bills include, the growth in Medicare payments will slow down along with overall cost growth, so there won't be any excess costs to "shift."

In any case, the idea that all of the difference between the projected cost of health services and payments from Medicare and Medicaid will be passed from providers onto private payers is not consistent with even the most inflated representations of "cost shifting." Moreover, the impact of universal coverage on providers' revenues may be much greater than that reflected in the AHIP analysis, which would mean that the "reduced cost shift from uncompensated care" would enable insurers to achieve lower prices from providers and lower premiums. The analysis also overstates the number of insurance plans that will affected by the tax.

The very assertion that all of the costs that AHIP associates with these provisions would be passed on to the consumer and that private insurers do not have effective tools for slowing the growth in premiums reinforces the need for a change in the way the health insurance market works. The lack of real competition among insurance companies in many areas means that any additional costs faced by plans can simply be passed on to their subscribers, because there are few alternatives and relatively little market pressure preventing them from doing so. In a national insurance exchange framework (especially with a public plan option), private insurers would not find it so easy to pass on these "costs," and would have a strong incentive to push back against excessive provider payment increases and institute effective private sector cost containment tools.

House Democrats and for that matter, every Member of Congress, should be concerned about every factor of health care costs, including the amount of profit generated.

At the same time, America's Health Insurance Plans (AHIP) is correct in pointing out that health plan profits are not the major factor driving health care costs. In fact, a recent Atlantic Monthly Magazine article concluded, that confiscating the annual profits of every U.S. health insurance company, would pay for only four days of health care for all Americans, while seizing the profits of the ten largest U.S. drug companies would pay for only seven additional days of care.

Vilifying one element of the health care system (i.e. the insurance industry) is neither fair, accurate nor useful. There are many factors contributing to rapid health care cost increases, including the massive administrative costs inherent in our poorly structured health insurance system.

I further believe, as our Coalition and others have long stressed, that health reform must be comprehensive and that the policy debate must not lose sight of the fact that the underlying major drivers of health care costs are the number of tasks, technologies and services ordered by health professionals and hospitals and the prices charged for them.

Unfortunately, current Congressional reform proposals have yet to adequately address these major problems. Until they do, it will be impossible to attain or sustain health insurance coverage for every American.

Much remains to be done. We desperately need comprehensive health system reform and we need it now.

The industry's report has already been criticized on substantive grounds by many respected experts (health policy now moves almost as fast as the news cycle). The industry's broadside is not at all surprising. Health reform debates have stages, and as we move out of the Finance Committee to the effort to forge single bills in the Senate and the House and then a final bill, we enter a different and decisive stage when all stakeholders in the debate can be expected to up the ante on behalf of their positions. The good news is that even though the debate will be intense, the focus, unlike the town hall meeting wars of August, will at least be on differences on the issues, especially how best to pay for the legislation and assure that premiums are affordable and coverage is adequate in a compulsory system.

The industry's report signals the beginning of the final stage in the health reform debate and possibly also their sense that reform will now pass in some form. They may want to get the best deal they can while there is still time.

Today's criticism by the insurance lobby gives hypocrisy a bad name.

The insurance lobby now claims that health care reform will cause significant premium increases, conveniently forgetting that they imposed significant premium increases during the past decade that are making health coverage unaffordable for families and businesses.

In the decade of 2000 to 2009, average family insurance premiums for employer-based health coverage increased from $6,772 to $13,073-an increase of 93 percent while median worker earnings rose by only 19 percent.

As a result, premiums rose 4.9 times faster than earnings - even though those rising premiums purchased 'thinner' coverage with higher deductibles and copayments as well as fewer benefits.

The insurance lobby's scare tactics are ironic and deplorable. They are like a poker player who complains about his hand when, in fact, he is the dealer.

You have to wonder what took these guys so long. They have been negotiating in good faith for 10 months while Obama and the Democrats have been hammering away at them in public -- calling them evil, selfish and you name it.

I suspect the PWC study is correct. If anything, it may err on the conservative side. Everywhere guaranteed issue and community rating have been imposed, premiums increase substantially. How could it be otherwise?

And yes. These premium increases are a tax on the middle class. They are being forced to pay for someone else's benefits. Remember Obama's campaign promise: We're going to insure everybody and it won't cost the average voter one red cent. I hope you did't belive that.

This is hardly the 11th hour. More like the end of the beginning, where the problem that Democrats have faced from Day One is finally coming to a head.

The Left and the health care industry both want universal health insurance coverage. The industry, because universal coverage means massive new government subsidies. The Left, because that’s their religion.

But universal coverage is so expensive that Congress can’t get there without taxing Democrats.

• Sen. Jay Rockefeller (D-WV) is the biggest opponent of Sen. Max Baucus’ (D-MT) tax on expensive health plans because that tax would hit West Virginia coal miners.
• Unions vigorously oppose that tax because it would hit their members.
• Moderate Democrats in the House oppose Rep. Charlie Rangel’s (D-NY) supposed “millionaires surtax” because they know it would hit small businesses in their districts.

And on and on…

But if congressional leaders pare back those taxes, they lose the support of the health care industry, which wants its subsidies.

• That’s why the health insurance lobby funded this PriceWaterhouseCoopers study saying that premiums would rise under the Baucus bill: the $500 billion bailout they would receive isn’t enough. They also want – they demand – steep taxes on Americans who don’t buy their products.
• The drug companies, the hospitals, and the physician groups are likewise demanding big subsidies, and will run ads to kill the whole effort if those subsidies aren’t big enough.

As always, health economist Uwe Reinhardt put it colorfully:

It’s no different from Iraq with all the different tribes…‘How does it affect the money flow to my interest group?’ They are all sitting in the woods with their machine guns, waiting to shoot.

Once the shooting starts, industry opposition will sway even Democratic members, because there are physicians and hospitals and employers and insurance-industry employees in every state and congressional district.

Can President Obama and the congressional leadership satisfy both groups? My guess is, probably not, and a misguided effort at “reform” will therefore die. Again.

The gloves are off in the fight for health reform, and the insurance industry has decided that it's time to start throwing analytically indefensible punches. Two recent cases in point: (1) the headline grabbing "report" entitled the "Potential Impact of Health Reform the Cost of Private Health Insurance Coverage," by PriceWaterhouseCoopers , for AHIP (the main health insurance industry trade group); and (2) the "Blue Perspective" entitled "Age Discounts ‘A Must' to Encourage Young Adults to Purchase Insurance," by the Blue Cross and Blue Shield Association.

Thankfully the Urban Institute, in work funded by the Robert Wood Johnson Foundation, has recently released a thorough and devastating rebuttal to the Blue claims. So my comments below focus mostly on the AHIP paper.

Consider the source. Most think tank work is funded by Foundations, which by law are nonpartisan. They focus more on objectively informing the public debate than on promulgating particular points of view. On the other hand, consulting firm work is often funded by an interested party with a major stake in the outcome of a policy debate. Readers should be very careful before repeating or reporting claims made by reports that were funded by people (or businesses) with a "dog in the hunt."

Consider the openness of the data and methods. Good policy research uses nationally and statistically representative data so that its conclusions reflect behavior of the actual population. The PriceWaterhouseCoopers report uses proprietary data which are not representative of anything. Just because you have lots of data does not mean it accurately reflects the population.

As a great example, the Urban team describes their methodology and their model in great detail, so that its work is subject to scientific standards of scrutiny and reproducibility. The same cannot be said for the report AHIP commissioned from PriceWaterhouseCoopers. The consulting firm neither allowed neutral parties to check its methods, nor did it send it out for review by neutral parties before releasing to the press. The timing of the release (the Sunday of Columbus Day weekend, two days before the Finance Committee vote) indicates this report was about influencing the vote, not increasing the amount of good information in the debate.

The report ignores the subsidies included in the Finance Committee bill. Eighty-five percent of people getting coverage from the new insurance marketplace are going to receive financial assistance to pay for it. The estimates ignore this. How can you claim to analyze premiums without taking into account subsidies to help people afford that coverage? Providing subsidies to make insurance affordable is one of the primary goals (and costs) of reform. This is a stunning omission on the part of PriceWaterhouseCoopers.

The report ignores the excise tax on high-cost plans. It says: "Although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is applied." You cannot purport to complete an economic analysis, and then ignore the behavioral effects of economic analysis! The claims that the excise tax will add to the cost of small and large group coverage should be ignored. The Congressional Budget Office (CBO) and most economists believe that the dual incentive for insurers to offer more value for dollar and consumers to choose less-expensive policies is one of the surest ways to slow the rate of health care cost growth.

The report assumes that all Medicare savings will be converted into private sector cost shifts. In other words, it assumes that all Medicare savings realized through the legislation would ultimately translate into reduced payments to providers, which will be shifted into higher prices for private payers. In fact, the biggest savings from the Medicare program in the legislation are realized from reducing the current formulaic overpayments to Medicare Advantage plans (a.k.a. private insurance plans), instead requiring them to bid competitively. Long-run changes to payment policy are really about creating incentives for higher-quality, efficient care -- not simply about paying providers less. In reality, many high-quality providers will make more under the proposed reforms. (This is why so many provider groups and coalitions like Health CEOs for Health Reform support smart reforms that realign incentives.)

The report assumes that premium growth in the absence of reform will be the same as per capita health care cost growth. They made this "assumption" even though premium growth has outpaced health care cost growth for the last 10 years. Ironically, this is primarily because some insurers have increased their market share, reducing competition in the marketplace. By underestimating expected growth in premiums, this baseline is biased against reform.

The report ignores the fact that under the Senate Finance bill, "If you like your coverage, you can keep it." The report overemphasizes the number of Americans who will have to "buy up" under reform. Not only does the Finance Committee bill allow existing plans to be "grandfathered," but it provides young adults with the option of purchasing a less-generous policy. When combined with provisions to allow young adults to stay on their parents insurance until they are 26, this will help keep costs down for young adults. Further, a vast majority of insured Americans now have plans that meet the actuarial value standards in the bill. The Finance Committee takes steps to stabilize premiums even further by providing a reinsurance fund for the transitional years in the new health insurance exchange.

The report conflicts with CBO's assessment of the individual mandate. There is a legitimate point, raised by insurers, about the individual mandate. If Congress reduces the penalties for remaining uninsured too much, it weakens the mandate. And that in turn impacts how the insurance markets -- predicated on the reform linchpin of guaranteed issue -- will function. However, the CBO has analyzed this question. It concluded the combination of subsidies and bidding incentives in the Finance bill does not hit the danger zone. Vigilance and further thought on this point is important, but this inflammatory report should not be taken seriously by lawmakers weighing the merits of comprehensive health reform.

The report everyone should be reading is the new paper by Linda Blumberg and colleagues at the Urban Institute. They found that limiting (or even eliminating) the amount premiums can vary based on age does not add to aggregate subsidy costs. The Urban report makes short shrift of the claim by the Blue Cross Blue Shield Association that markets cannot survive if insurers cannot vary premiums five-fold based on age (i.e. charge older people five times more than they charge younger people).

I have long defended the private insurance industry's ability to add value to a reformed and regulated insurance marketplace where they compete based on price, quality and customer satisfaction -- not on underwriting. I still believe this to be true. But we cannot solve a challenge as great as our health care crisis if we are not honest about the facts and the implications of reform. Aside from the obvious conflict of interest associated with a report funded by the very industry it analyzes, PriceWaterhouse's basic analytic assumptions -- by their own admission -- are at variance with the bill and the opinions of most analysts.

House Democrats have ruled out an excise tax on high-end insurance plans as a way to pay for health reform, although that is a primary revenue raiser in Senate Finance Committee Chairman Max Baucus’s plan.

House Democrats are considering limiting their proposed health care surtax to individuals earning above $500,000 a year, and that leaves about a $100 billion funding shortfall for reform, CongressDaily reported October 8 [[[link the story]]]. To help fill the funding hole, they are considering taxing securities transactions and/or taxing insurance company profits. But insurer profits are “much less than other industries within the health care sector,” Robert Zirkelbach, spokesman for America’s Health Insurance Plans, argued. “The data’s clear that health plan profits are not what’s driving rising health care costs,” he said.

Should House Democrats be worried about insurance industry profits? And is Zirkelbach correct in his assertion that insurer profits aren’t driving rising health care costs?