Health Insurers, Poised for Round 2
The New York Times
By REED ABELSON
Published: February 28, 2009
GO ahead, take a guess: Which company has developed a 2,000-page strategic plan and gathers its senior executives almost every other working day to talk about how well they are doing? Not General Motors. Not Citigroup. Not A.I.G.
The answer is Aetna, the Hartford-based company that is one of the nation’s largest health insurers.
Almost every business in the country is
feeling buffeted by the recession. But for
health insurance companies, the
bleak economy is only part of the problem: the changing of the
Health plans are losing millions of members who say they can no longer afford their products. Some big employers are becoming increasingly frustrated — and vocal — about how much they spend on health benefits. Smaller ones are being crushed by ever-rising health care costs. On top of that, the Republicans who pushed to expand the role of private players in the health care system have largely been replaced by Democrats who want to overhaul it.
As the conversation intensifies in
President Obama, along with the Democratic majorities in Congress, may simply rewrite the rules, forcing insurers to take all comers as customers, including those who previously would have been rejected because of poor health. The government may sharply cut how much it pays insurers to take care of the elderly. And, in what some people say would be a clear step toward a government-run system, there is even discussion about expanding the Medicare program, now limited to the elderly and the disabled, so that anyone could enroll in it.
Whatever the path, President Obama has made clear that changes are coming. “We can no longer afford to put health care reform on hold,” he said in his address last week to Congress. Later in the week, he outlined a plan to slash billions in payments now going to insurers.
The insurers are “as vulnerable politically as
they have been in the last 10 to 15 years,” said Sheryl R.
Skolnick, an analyst at CRT Capital Holdings in
Given the current sentiment, the insurers
understand that they won’t be able to beat back all efforts at
sweeping change, as they did so successfully during the
“We have to transform the system,”
said Ronald A. Williams,
Stephen J. Hemsley, the chief executive of the
UnitedHealth Group, another large insurer, based near
“The issue is around how,” he said.
Insurers, of course, are eager to influence the debate, and the industry trade association offered its own proposals last year. They include some important concessions, including the idea of requiring insurers to cover everyone. The insurers have also been participating in groups discussing what changes are necessary, and have been taking part in closed-door discussions with members of the staff of Senator Edward M. Kennedy, Democrat of Massachusetts, about reaching a consensus on how Congress should proceed.
Of course, any drop in the number of uninsured, now 46 million, could translate into more paying customers. Under the stimulus bill signed into law last month, for example, the government provides for significant subsidies to help more people afford to keep employer-based coverage once they lose their jobs.
But the industry faces a more profound challenge: to prove to its customers — and to the government — that it is more than a middleman between the doctors and hospitals providing the care and those who pay for it.
“The health plans are going into a very dangerous time because many of them have destroyed the perception of value they were trying to create,” Ms. Skolnick said.
BEFORE the last year or so, health insurers were thriving. By assembling large networks of hospitals and doctors, the insurers negotiated steep discounts and still offered patients a choice of where to go for care. After flirting with managed care in the early 1990s to reduce costs, the insurers largely abandoned those efforts after patients and doctors complained. Although health care costs have continued to climb faster than inflation, insurers were typically able to pass along the increases to employers or individuals.
With the Congressional overhaul of the Medicare program in 2003, the industry won an important source of additional business. Insurers who enrolled the elderly in private health plans were paid about 14 percent more than the government typically spent under traditional Medicare for service that at times was nearly identical. UnitedHealth, for one, seized this opportunity, signing up 1.7 million members in its Medicare Advantage plans.
But in trying to bring down health care costs, Congress and the White House are likely to stop being so generous. In a television interview in January, Mr. Obama described the industry’s participation in Medicare as an example of government programs “that don’t work.”
“We are spending a lot of money subsidizing the insurance companies around something called Medicare Advantage, a program that gives them subsidies to accept Medicare recipients, but doesn’t necessarily make people on Medicare healthier,” he said.
In the budget plan released on Thursday, the president said he would cut payments to health insurers in Medicare Advantage by $175 billion over 10 years, through competitive bidding. The insurance trade association objects, saying the cuts unfairly target people served by the program.
In reacting to the discussions of reform, the companies have sought the help of lobbyists and others, like former Senator Tom Daschle. UnitedHealth paid Mr. Daschle, whose nomination for health and human services secretary was recently derailed, more than $5,000 for his policy advice.
But the industry is also taking a very public role in voicing concern about some of the proposals being floated. In supporting legislation that would prevent the companies from refusing to cover people with existing medical conditions, the insurers have said the government must require everyone to buy insurance, subsidizing the cost for those who cannot afford it.
FOR private insurers, the more troubling specter in health care reform is an expansion of the Medicare program to those under 65. The program has lower expenses and generally pays much less for medical care than private insurers, so it would probably translate into a lower-cost plan for consumers. To help lead opposition to the idea, which they say puts them at an unfair disadvantage, insurers have joined with hospitals to argue that Medicare pays too little so that any expansion would significantly hurt providers.
But by acknowledging a need for a greater government role, the industry hopes it can persuade the president and Congress that it makes the most sense to work together. “Whatever we do has to be a public-private partnership,” said Mr. Williams, the Aetna C.E.O.
Politics aside, the weak economy has highlighted just how vulnerable insurers are to pricing themselves out of the market. The percentage of people who are commercially insured fell to about 68 percent last year from about 78 percent two decades ago, according to Matthew R. Borsch, an analyst at Goldman Sachs. The numbers do not include the elderly.
“The reason really comes down to affordability,” said Mr. Borsch, who predicts that the number of people who lose or drop their commercial coverage during the economic downturn could approach 10 million. “It looks like the pace of erosion is really accelerating.”
Insurers’ corporate customers have been increasingly critical of the value of their health coverage. I.B.M., for example, says the industry is not helping to provide care that is more cost-effective in helping their workers live longer and more productive lives. The insurers “don’t have a clue about providing what we really want to buy,” said Dr. Paul Grundy, the executive at I.B.M. who oversees its health care efforts.
But the insurers say they are innovating.
Mr. Hemsley says UnitedHealth has established roots in as many businesses as it can, including some well outside its core health insurance operations, like consulting services to hospitals and doctors. The strategy also involves serving a range of people, whether through Medicaid, Medicare or employers.
UnitedHealth “is built to be an adaptable business model,” Mr. Hemsley said. As health care evolves, he said, “the most effective business model is one that evolves with it.”
The company cannot predict how the environment
will look beyond the next three years, he says, so it has tried
to grab opportunities as soon as they surface. UnitedHealth does
not hesitate to make large acquisitions or enter new markets.
Its acquisition last year of Sierra Health Services included
The company’s current emphasis is on increasing its presence in Medicaid, where it expects to add roughly 400,000 new members this year.
“We’re committed to and believe we’re making a profound impact on the delivery system,” said Dr. Lonny Reisman, chief medical officer at the company.
One strategic goal has been to track all of an employer’s medical spending, from prescription drugs to employee use of mental health services. The idea is that the insurer can better manage the care of an employee who has a stroke, for example, if it can be sure to provide counseling for depression and understand what medications the person should be taking.
“We knew there wasn’t going to be a Republican
administration forever,” said Mark T. Bertolini,
HOW well UnitedHealth or
But others say insurers face significant
long-term competition from an array of players. The country
could end up adopting more systems like Kaiser Permanente, a
health plan that directly employs doctors and has shown it can
often deliver better care for less money. “What they’re
terrified of is the Kaisers beating them,” said Len Nichols, a
health economist for the New America Foundation in
Other possibilities include doctors forming more alliances to oversee care or hospitals joining forces with physicians — all to start competing with insurers.
“The world is changing for all of us,” Mr. Williams said.