Mr. Miller's critique of Health Care for America Now's report closely mirrors what the insurance industry themselves posted after it was released. The objections come down to disputing the data.

For the report we used Kaiser survey data, a well respected source that goes back years. If insurance company spokespeople like Mr. Miller want to dispute that data source that's fine, but we - and I'm sure Kaiser - stand by the data.

We also stand by the conclusions. The insurance industry's premiums are rising not only faster than medical inflation, they are rising faster than even what insurers spend on medical benefits, hospital and doctor profits included. The industry is gouging the American people, and spending millions per day through the U.S. Chamber of Commerce on ads to protect their profits while arguing that their profits aren't worth scrutiny.

Once again, they can't have it both ways.

But Are Milked for All They Are Worth

Perhaps the only thing that is more inflated than recent insurance premiums is the distorted depiction of administrative costs and profits for private insurers. A pox on both sides of a pseudo statistical debate that borrows factoids both liberally and selectively.

First, the AHIP presentation does overreach misleadingly (and not particularly cleverly), by essentially doubling the denominator size of health spending dollars – including those for publicly financed programs like Medicare and Medicaid -- to make the health insurance industry’s already unremarkable profit levels appear even smaller. Of course, industry profits can be reported in various ways and remain subject to a range of accounting devices. But at least one more straightforward approach would use several years of recent data and measure profits as a percentage of revenue. Scott Harrington of the Wharton School did this in his presentation at AEI’s October 21 conference last year on private insurance markets, using the widely accepted Fortune 500 annual reports, as well as a broader database for publicly traded private insurers. Net income margins for publicly traded insurers were 7.1 percent in 2005, 5.8 percent in 2006, 6.2 percent in 2007, and 2.2 percent in 2008 (a bad year for many industries). It should not be a surprise that they bounced back up to some degree in absolute dollar amounts in 2009. However, mean net income over the last two decades was roughly 3.3 percent. Profit margins for the private health insurance industry generally come in below the midpoint of major industries analyzed.

Second, the hyper charged rhetoric of Health Care for America Now is leveraged from a shaky empirical base. Among other mistakes, it misunderstands the difference between medical price inflation alone (poorly measured traditionally) and increases in medical services utilization (quantity). The latter accounts for a substantial share of the annual rates of increase in health spending, and related health premium costs, over time (see “Medicare”). Administrative costs for health insurance are mismeasured badly by both political partisans and amateur commentators, and even the best estimates fall short of precision. However, the most consistent official figures by the CMS actuarial group responsible for national health expenditure estimates have tended to be within a range of 11 to 14 percent of private health insurance spending over the last twenty years, and they actually were highest (over 16 percent) in the early 1960s. Moreover, it turns out to be a somewhat true fact that the share of private insurance spending for administrative expenses in annual NHE data has been declining each year since hitting a relative high point in 2006 of 12.6 percent. The 2008 figure was 11.5 percent and the projected share for 2009 was 10.8 percent.

Another, and arguably more precise, set of estimates can be found at the Sherlock Company, which specializes in this area and reported administrative costs for all types of commercial health insurance (not including the lower administrative services only, or ASO, expenses for self-insured employer groups) at 11 percent for 2007. It also noted that administrative costs were much lower (16.4 percent) than commonly mis-reported for the individual insurance market. (Note, too, that insurer profits are not included in these numbers, but they were an additional 2.35 percent in 2007 under the Sherlock measurement methods).

To be fair, official administrative costs for private insurers don’t capture the total administrative expense burden across the entire health care system. Doctors, hospitals, and other medical providers incur additional costs in complying with the often complex and redundant paperwork requirements of multiple insurers; though nowhere close to the inflated older numbers circulated by more zealous advocates of a Canadian-style single-payer approach. A more recent team of researchers set upper end estimates of the administrative cost of physician interactions with health plans around 23 to 31 billion dollars a year, and in other work through the Institute of Medicine suggested that savings for physicians from administrative streamlining and simplification might amount to around 12.5 to 20 billion dollars a year.

There are a host of other dubious numbers circulated by HCAN and like-minded advocates that space here (and reader attention) does not allow me to address in full. But one illustrative example can be found in the multi-source recycling of earlier “research” by the Commonwealth Fund regarding the purported denial of coverage (and care) in the individual insurance market, due to discrimination based on pre-existing conditions. As I testified before the Joint Economic Committee last September,

“A recent report prepared by the HHS Office of Health Reform cites a July 2009 Commonwealth Fund study that estimated that 12.6 million non-elderly adults – 36 percent of those who tried to purchase health insurance directly from an insurance company in the individual insurance market – were ‘discriminated against’ because of a pre-existing condition in the previous three years. The study design was described by the Commonwealth Fund as based on 130 adults insured all year with individual insurance, and nearly 1390 adults similarly insured all of 2007 with employer-sponsored insurance, all of whom were interviewed from June through October, 2007. One particular question evidently asked them (it’s unclear if those answering also included some or all of the more numerous survey respondents with employer sponsored coverage) whether they had tried to purchase coverage in the individual market between 2004 and 2007. However, the actual findings beneath the sweeping headline described above were rather thin. They failed to distinguish between those seeking individual coverage that were turned down completely, had a specific health problem excluded from their coverage, or were charged a higher price. Most other analysts studying individual insurance markets would suggest that the latter category (somewhat higher rate-ups of preferred and standard charges) account for the vast majority of the above categories of alleged “discrimination.” Note, too, that the 1996 HIPAA provisions prohibiting discrimination on the basis of health status in employer group plans, as well as setting limits on pre-existing condition waiting periods, for those employees maintaining continuous insurance coverage largely have eliminated any such similar practices in that much larger private insurance market. For a more standardized and deeper estimate of the relative size of the “medically uninsurable” population not receiving coverage (rather than just those paying more for it), one must go back to the 2001 MEPS, which was the last federal survey to ask respondents under the age of 65 about being denied coverage for medical reasons.

In the 2001 MEPS Household Full Year Consolidated File, roughly 2 million persons under the age of 65 said that they were denied health insurance coverage at some time in the past (but not necessarily during 2001). That number also did not necessarily represent individuals who were uninsured in 2001. The numbers reported immediately below relate to denial of insurance by health status and the medical reason

for denial (a person could state more than one reason).

Total Individuals claiming denial of health insurance 1,980,000

(0.8 Percent of total pop under 65)

Denied due to diagnoses of cancer 200,000

Denied due to hypertension 190,000

Denied due to diabetes 410,000

Denied due to coronary artery disease 140,000

Denied other reason 1,210,000

Uninsured Individuals

Total Claiming denial of health insurance 650,000

(1.3 Percent of uninsured under 65)

Denied due to diagnoses of cancer 60,000

Denied due to hypertension 50,000

Denied due to diabetes 150,000

Denied due to coronary artery disease 40,000

Denied other reason 230,000

The Household Component of the 2002 Medical Expenditure Panel Survey (MEPSHC) also indicates that for persons with high medical expenditures under the age of 65, the most likely ones in that category are those who have private insurance. Among those non-elderly, non-institutionalized persons in the top 5 percent of the health expenditure distribution during calendar year 2002, more than 70 percent had private insurance during the year, and only 4 percent were uninsured.”

For the desperate few who might still be reading this post at this point, the answer to the original question – who is to blame for the problem of high costs in the U.S. health care system? – is that there is plenty of responsibility (or irresponsibility) to spread around. Insurers could do a better job of trying to control low-value health care expenses and streamlining administrative hassles, instead of largely passing through rising health care costs to payers and blaming everyone else. But providers also could do a better job in delivering better coordinated and more evidence-based higher-value care. Employers sponsoring health plans might reconsider their late-1990s retreat under pressure from more aggressive managed care insurance options or their reluctance at times to make the full costs of more generous comprehensive health benefits fully transparent to their employees. And health care consumers could do a better job of seeking out and using the limited and imperfect information that does exist regarding better treatment choices and better performing medical practitioners (and insisting on MORE), as well as improving their health behavior and lifestyle practices.

And politicians could pause from blaming everyone else, too, as a first, second, and last resort; and reflect instead on reducing and correcting the host of misincentives, regulatory excesses, and price distortions that they have previously created (before adding even more). We might even dare to blame those public policy advocates, researchers, and media translators that periodically facilitate, if not originate, a cloud of half-truths and statistical factoids without examining them closely. They may taste great but remain less filling.

The insurance industry is pushing their latest lie, claiming that only 1 cent of every dollar they take in goes to profits:

Insurers have responded to the administration’s campaign against recent rate hikes by blaming increasing health care costs, provider cost increases and adverse selection (healthier Americans are dropping coverage) for their premium increases. To hear them tell it, the insurance industry is a low-profit industry that spends just one cent of every premium dollar on administration and strives to reduce costs by encouraging efficiencies. Insurers “do not deserve to be vilified for political purposes,” Robert Zirkelbach, a spokesman for America’s Health Insurance Plans (AHIP) told the AP:

For every dollar spent on health care in America, less than one penny goes toward health plan profits. The focus needs to be on the other 99 cents.

Never mind that even if it were true that one penny adds up to $25 billion per year - a quarter of the cost of health reform over 10 years. But the claim is false:

Zirkelbach is clever enough to compare the private insurance industry’s administrative spending to national health care expenditures — 45 percent of which includes spending in Medicare, Medicaid and other public programs. In the context of total spending, insurers administrative costs may look small, but compared to the revenues of private insurers, administrative spending is seen as far more substantial. Insurers skim off 15-20 percent of premium dollars for administrative costs and profits which fund TV ad campaigns, Washington lobbyists, lavish company retreats and outlandish CEO salaries.

Recent reports by Health Care for America Now bear out this analysis. Today, the insurance industry is making record profits, and it's increasing its rates twice as fast than the underlying cost of medical care. There's no other interpretation to be had - insurers are squeezing more money from their customers while dropping their most expensive patients.

Another reason the insurance industry's excuse that their profits shouldn't be the "focus" doesn't hold water? They just launched ad campaigns spending over $1 million per day to try and kill health care reform to protect their profits - profits which are apparently so small as to be unworthy of scrutiny.

While the insurance industry is only spending about $1 million of our premium dollars on ads themselves, their front group, the US Chamber of Commerce, through which they've funneled tens of millions in the past and are funneling more now, is planning on spending a million a day:

A coalition of organizations led by the U.S. Chamber of Commerce plans to spend as much as $1 million a day on advertisements designed to pressure lawmakers to vote "no" on health-care legislation.

The campaign will last about 10 days and cost between $4 million and $10 million, said Bruce Josten, the Chamber's top lobbyist. The ad will start on cable television and then run in 17 states served by moderate and conservative Democrats, he said.

Though these two ad programs are being reported as separate pushes, they're not. The insurance industry is behind the Chamber ads, meaning they are spending over $1 million of your premium dollars every day to protect their profits. They're protecting themselves from things like regulation that would force them to spend 85% of their premium dollars on care, exchanges to promote actual competition between companies as opposed to the Wall Street-certified lack of competition that exists now, and a public option, all of which would put a cramp in their current style of money-making.

And this spending is on top of the millions per day they're already spending on lobbyists.

(The ads themselves, especially the Chamber ones, are highly misleading as well.)

It's outrageous that the insurance industry can claim on the one hand that their profits aren't the problem, then turn around and spend astronomical sums on ads to protect those very same apparently unimportant profits. And all the while they're raising rates for you and me by 30%, 40%, or over 50% in a dozen states.

Secretary Sebelius took that point to the insurance industry's conference - protested by thousands yesterday - in a speech to them today:

You can choose to take the millions of dollars you have stored away for your next round of ads to kill meaningful reform, and use them to start giving Americans some relief from their skyrocketing premiums. Instead of spending your energy attacking the parts of the President's proposal you don't like, you can use it to strengthen the parts you do.

The industry can't have it both ways. They can't raise their rates twice as fast as the price of underlying care and then claim they're not gouging their customers. And they can't spend over a million a day on ads to protect their profits and then claim their profits are small or unworthy of attention and outrage.

Every minute, 8 people are denied care for profit by the private insurance companies. We need health reform that puts these companies in their place and gives quality, affordable health care for the American people. That's what the thousands in the streets were fighting for yesterday. (The photo above is an aerial shot of the end of the action yesterday.) That's what the dozens of insurance industry survivors are asking Congress for today. And if we fight for it, that's what we'll get.