Health Insurers See 'Universal'
November 24, 2008
Melissa Davis, Senior Writer
insurance companies such as Humana and UnitedHealth always seem
to pay a price for "gifts" from the federal government.
Over the past several years, they have pocketed billions of
dollars in government subsidies selling private Medicare plans.
They know that Democrats aim to cut those bonus payments,
however, so they're searching for new ways to grow. They see
universal health care, which could turn 46 million uninsured
Americans into potential customers, as their next big
President-elect Barack Obama has regularly listed universal
health care among his top priorities. Even so, some experts
believe, the new president must address his prime concern -- the
economic crisis -- before he can think about launching an
expensive health care program. As a result, they say, private
insurers will likely endure the looming Medicare cuts with
little opportunity to offset those losses.
"There isn't going to be a growth driver in the health
insurance business for
the next few years," predicts Robert Laszewski, an industry
consultant who serves as president of Health Policy and Strategy
Associates. "It's going to be very bad times relative to the
very good times" health
insurance companies have enjoyed.
Others still see a real chance for meaningful reform. They
believe that the economic crisis has been caused in part by
skyrocketing health care costs, which have been blamed for half
of all personal bankruptcies and the decline of giant
corporations such as General Motors and Ford . As a result, they
feel that the country's leaders must address both issues at the
Sheryl Skolnick, senior vice president of CRT Capital Group,
belongs to that camp. The veteran health care analyst predicts
that Democrats will pounce on the "irresistible opportunity" to
pass a comprehensive health
insurance bill now that they have the power
to do so.
Last time, she reminds, they waited so long for Hillary Clinton
to deliver her doomed health plan that they lacked the votes --
and the public support -- necessary to pass it.
"The moral of the story is 'Don't waste time,' " she says. "I
think they're going to be very, very swift this time around."
Private health insurers
know the stakes are high. Less than 12 hours after Obama gave
his victory speech, Cigna rushed out a press release
congratulating the new president and offering to help him with
health care reform. The company repeatedly stressed the
importance of "individual choice" and insisted that, to create a
successful program, "neither the private sector nor the
government can do it all alone."
Meanwhile, without help from the
government, private health insurers could lose their competitive
edge. Because Medicare spends just 3% of its budget on overhead
-- and faces no profit demands -- it could offer cheaper prices
for the same level of care.
Obviously, companies like Cigna stand to gain a lot. They can
win back some of the big accounts they've lost in recent years,
as cash-strapped employers dropped their expensive health plans,
while adding millions of new customers who never had the money
for their high-priced policies in the first place. They face
potential disaster, however, if the government decides to
replace -- or even compete with -- them instead.
Notably, experts say, the federal government runs the most
efficient health insurance outfit in the
country. It's called Medicare, they say, and it costs far less
than any comprehensive health insurance plan
sold in the private sector.
Many Democrats, including Sen. Ted Kennedy (D., Mass.), would
like to scrap the current health insurance
system and adopt a brand-new program called "Medicare for All."
So far, more than 90 members of Congress have already signed on
as sponsors of a pending bill that would create a single-payer
health insurance system. Several large
organizations -- representing doctors, nurses, mayors and even
all-American plumbers -- have endorsed the proposal as well.
Democrats know that market-oriented Republicans will soundly
reject a government-run system, however, and seem resigned to
compromise on a public-private partnership instead. They have
pointed to the current program in
which adopted universal health coverage two years ago, as a
To some, however, that looks like a mistake. While most people
in Massachusetts now carry
health insurance, they say, many of them
still ration their care because they cannot afford the expensive
deductibles and copayments in their private plans.
In fact, during the recent election,
residents voted overwhelmingly in favor of a nonbinding
resolution to replace their current program --which faces huge
cost overruns -- with a single-payer health
Right now, Obama's own proposal looks a lot like the Massachusetts plan. It differs in one major
respect, however. Although it clearly encourages private
insurers to participate, it also allows the federal government a
chance to do the same.
As a result, many Americans who lack health
insurance -- and even some who do not -- could flock to the
"Government expansions of health insurance
tend to spark debates about crowd-out, which speaks to insured
Americans who would drop private coverage to get subsidized
government coverage," PricewaterhouseCoopers noted in a detailed
report this month. "While the Obama plan would lead to a
significant portion of uninsured getting coverage, some of the
new money spent would fund those who had
insurance before the reform."
All told, the firm concluded, "about a third of the spending --
or $27 billion -- would replace spending on those who currently
On the same day that PricewaterhouseCoopers published its
report, Sen. Finance Chairman Max Baucus (D., Mont.) issued a
comprehensive proposal that could further expand the
government's role. Initially, at least, it extends Medicare
coverage to aging baby boomers who would otherwise be too young
"Medicare would pick up many uninsured people for whom
insurance tends to be extremely expensive,"
Skolnick observes. "But if you lower the age of eligibility to
55, given all the Baby Boomers that includes, you have just made
a big leap toward a single-payer system."
Through various programs -- such as Medicare, Medicaid and the
federal employee health benefits plan -- the federal government
already covers more than half of the nation's health care costs.
To be fair, Baucus has portrayed Medicare as a temporary carrier
for older baby boomers who need immediate coverage. Within a few
years, he predicts, they will find private
insurance companies to cover them instead.
Current Medicare beneficiaries have certainly made that switch.
Of the 45 million Americans who now qualify for Medicare,
experts estimate, 10 million have opted for private Medicare
Advantage plans. Once they make the change, experts add, they
tend to like it.
"Our true competition is not the old Medicare," Humana CEO
Michael McCallister recently bragged, "because no one ever goes
Customers might choose Medicare if it's a whole lot cheaper,
though. Right now, private companies enjoy generous subsidies
that allow them to offer attractive benefits and cover their
high overhead expenses at a healthy profit. Their private
fee-for-service plans, which cost about 17% more than basic
Medicare, have proven to be especially popular.
Democrats have long viewed those bonus payments as wasteful
handouts, however, and believe that the money should be put to
better use. By simply cutting overpayments to private
fee-for-service plans, experts estimate, the government could
save $10 billion a year. Baucus has already pointed to those
savings as a key source of funding for his universal health care
In fact, private insurers have faced a similar challenge
already. When Medicare invited them to sell competing coverage
about a decade ago, many of them jumped at the chance. They soon
found the government payments too small to cover their costs,
however, and wound up fleeing from the program.
"When private insurers have gone head to head against Medicare
and they didn't have extra payments," Laszewski notes, "Medicare
For now, at least, Laszewski sees no chance for a single-payer
insurance system and little chance
for any major reforms at all. He fully expects a repeat of 1992,
when universal health care seemed like a great idea until it
turned into a 14,000-page proposal that Congress couldn't pass
and voters decided they didn't really want. He feels pretty
confident that lawmakers can't find the money for the massive
When others look at that same picture, however, they see a
full-blown catastrophe that government leaders cannot afford to
ignore. They expect Congress to pass a comprehensive health care
package but, at the same time, worry about what it will look
like in the end.
"Obama made health care reform a central component of his
campaign, and he clearly has a mandate to fix our health care
system," insists Chuck Idelson, a spokesman for the
80,000-member California Nurses Association. "The issue is
whether we're going to tinker with the system and reinforce the
very substantial problems that exist or whether we're going to
achieve genuine reform."