Spearheaded by a determined President Obama, sweeping reform of the US health insurance market is virtually inevitable. Backing Obama are powerful lobbying groups such as Health Care for America Now, which are demanding change in what they perceive as an anti-competitive health insurance industry.
Facing the looming possibility of a major upheaval of the status quo, the US health insurance industry continues to come under increasing pressure as it stands charged by its critics of multiple abuses.
The first salvo in the attack came in March this year when Senator John D Rockefeller, chairman of the US Committee on Commerce, delivered a scathing condemnation of the industry’s reimbursement practices.
“The health insurance industry has been promising to pay a certain share of consumers’ medical bills, but then they have been rigging health charge data to avoid paying their fair share,” Rockefeller commented (see LII 234).
In parallel with Rockefeller’s condemnation of health insurers President Barack Obama and Congress began an aggressive campaign aimed at implementing radical reform of the US’ health insurance structure. Central to reform is a proposed public health plan which consultancy The Lewin Group estimates could result in the private health insurance industry loosing up to two-thirds of its customers.
Reinforcing the assault on health insurers is a far-reaching study into industry practices and pricing undertaken by Health Care for America Now (HCAN), a coalition representing more than 1,000 organizations in 46 states.
Indicative of the support HCAN has mustered, membership at the national level includes:
• Alliance for Retired Americans,
• American Academy of Family Physicians;
• American Academy of Nursing;
• American Academy of Pediatrics;
• American Medical Student Association;
• American Nurses Association;
• National Alliance of Professional Psychology Providers;
• National Consumers League; and
• National Physicians Alliance.
In its study HCAN lays great emphasis on the impact health insurance industry consolidation has had on competitiveness and insurance pricing.
According to HCAN more than 400 corporate mergers in the past 13 years have involved health insurers, resulting in a small number of companies dominating local markets. Backing its claim HCAN pointed to a report by the American Medical Association (AMA) showing that 94 percent of US health insurance markets are now highly concentrated.
The AMA’s definition is based on the US Justice Department’s interpretation which designates a market as being highly concentrated if one company holds more than a 42 percent share of that market.
High concentration is particularly evident in less densely populated and rural-orientated states, noted HCAN. For example, In Hawaii, Rhode Island, Alaska, Vermont, Alabama, Maine, Montana, Wyoming, Arkansas and Iowa, the two largest health insurers hold between them a share of at least 80 percent of the statewide market.
More populous states also have serious market concentration problems, noted HCAN. For example, Virginia’s largest health insurer, Well Point, controls a 50 percent share of the market with a further 11 percent held by Aetna. The result, claims HCAN, has been an unjustifiable increase in health insurance costs.
“Shrinking competition among health insurance companies is a major cause of these spiralling costs,” stressed HCAN. “Contrary to industry assertions, mergers have undermined market efficiency; premiums have skyrocketed, increasing more than 87 percent, on average, over the past six years.”
HCAN has powerful support for its assertions, including that of President Obama.
“The consequences of lax [antitrust] enforcement for consumers are clear,” then-Senator Barack Obama said in a September 2007 address to the American Antitrust Institute. “The number of insurers has fallen by just under 20 percent since 2000. These changes were supposed to make the industry more efficient, but instead premiums have skyrocketed.”
Insurance coverage falling
Rising health insurance costs have way outpaced increases in average incomes. For example, according to the Henry J Kaiser Family Foundation’s (HKFF) 2008 annual survey health insurance premiums increased by an average of 120 percent in total between 1999 and 2007 compared with a 29 percent total increase in average annual US wages to $25,434 and a 44 percent cumulative increase in inflation.
Indicative of the cost of health insurance, the National Coalition on Healthcare (NCH) estimates that the average annual premium health insurers charged an employer for a health plan covering a family of four in 2008 was $12,700 while single coverage averaged $4,700 . On average workers contributed nearly $3,400 towards the cost of cover in 2008, or 12 percent more than they did in 2007.
Consumers with no access to employer-sponsored health insurance face an even heavier cost burden. According to HCAN, for a typical family that moves from group to individual coverage with identical benefits, annual premiums rise by more than $2,000.
HCAN’s estimate may be conservative. Notably, the Wall Street Journal recently quoted Dennis Ceru, professor of entrepreneurship at the Babson College Graduate School of Business, as stating that the cost for a family on a private health insurance plan can exceed $20,000 a year.
“The biggest losers in the individual market are those who are less healthy or coping with a chronic illness,” noted HCAN. “Two-thirds of respondents in a recent survey said they found it difficult or impossible to find affordable coverage in the individual market.”
A serious consequence of rising health insurance costs is a steady increase in the number of Americans without cover.
According to the HKFF the number of uninsured American adults between the ages of 17 and 65 with no cover increased from 30.2 million in 2000 to 36.1 million in 2007, or 19.7 percent of people in that age group.
The HKFF estimates that the number of uninsured adults increased by at least 2 million in 2008, with the number of uninsured increasing by 1.1 million for every 1 percent increase in the unemployment rate.
Declining participation by employers in the provision of health insurance to their employers has played a key role in the increase in the ranks of the uninsured. According to the HKFF the rate of employer coverage fell markedly from 67.8 percent of all adults covered in 2000 to 63 percent in 2007.
High medical costs, decreasing health insurance coverage and rising out-of-pocket expenses even for those with coverage has also become a source of considerable misery to American consumers.
This was highlighted in a recent study by Harvard University researchers who found that average medical debt for people who filed for bankruptcy was $12,000, even though 68 percent of these people had health insurance.
In addition, the study found that half of all bankruptcy filings were partly the result of medical expenses and that every 30 seconds in the US someone files for bankruptcy in the aftermath of a serious health problem.
Insurers earn a bad name
Amid the serious health expense-related problems faced by American consumers and employers, health insurers have not showered themselves in glory.
In its study, HCAN highlighted a number of recent high profile legal actions brought against major health insurers. Among these was a suit filed against UnitedHealth, the second-largest US health insurer by enrolment, by a trade group of doctors in New York in which they alleged that UnitedHealth had used illegal coercion to limit competition.
In a separate issue UnitedHealth agreed to pay $350 million toward reimbursing patients and physicians underpaid over 10 years as a result of flaws in the process of out-of-network reimbursement (ONR). ONR refers to payments relating to consumers who choose to receive care from health care providers outside of an insurer’s provider network.
Commenting on the settlement the attorney general of New York, Andrew Cuomo, said: “For the past 10 years American patients have suffered from unfair reimbursement rates for critical medical services due to a conflict ridden system that has been owned, operated and manipulated by the health insurance industry.”
In its study HCAN also took a hefty swipe at what it termed “oversized profits and executive pay.” Based on filings with the Securities and Exchange Commission HCAN noted that net profit of the 10 largest publicly traded health insurers increased by 428 percent between 2000 and 2007 to a total of $12.9 billion.
HCAN also noted that the 10 insurers, which cover 116 million Americans, spent $52.4 billion on share buy-backs between 2000 and 2007.
“The companies prefer to hand over the money to Wall Street investors and executives whose soaring compensation packages depend on reaching earnings-per-share goals that often would not be achieved without buybacks,” stated HCAN.
Striking a hard blow in an era when executive pay is under scrutiny HCAN highlighted that in 2007 alone the CEOs of the top-10 insurers earned a combined total compensation of $118.6 million — an average of $11.9 million each, or 468 times more than the average American worker made that year.
Support for reform growing
The HCAN study has spurred on calls for reform by, from among others, Senator Charles Schumer who termed the study “the starkest evidence yet that the private health care insurance market is in bad need of some healthy competition.” Schumer serves on numerous Senate committees including the Finance Healthcare Subcommittee.
“We believe that it is fully possible to create a public health insurance plan that delivers all the benefits of increased competition without relying on unfair, built-in advantages,” stressed Schumer. “If a level playing field exists, then private insurers will have to compete based on quality of care and pricing, instead of just competing for the healthiest consumers.”
A former Federal Trade Commission policy director David Balto also has strong views. “The HCAN report provides a much needed spotlight on health insurance markets and what it found is a toxic marketplace where competition and consumers suffer.”
He continued: “Unfortunately, antitrust enforcers have been asleep at the switch for the past several years and have permitted health insurers to acquire monopolies in dozens of markets. Consumers have paid a steep price in higher prices, deceptive and fraudulent practices, and ultimately assembly line health care.”
Balto, now a senior fellow at the Center for American Progress, has backed his view with a letter co-signed by HCAN to the Department of Justice Antitrust Division asking for a comprehensive investigation into the health insurance industry.
However, Balto believes change will not be easily achieved. He noted while renewed antitrust and consumer protection enforcement is essential, it is insufficient to restore what he termed some semblance of a functioning market.
“Insurance companies will fight tooth and nail against any antitrust or consumer protection enforcement, and they have the monopoly profits to fund a One Hundred Years War of litigation,” said Balto.
Only a public health insurance option will be able to force private insurance companies to adopt new pro-consumer policies, he stressed.
Unsurprisingly, the health insurance industry is not sitting back in the face of criticism.
On the marketing front, for example, media intelligence firm Mintel Comperemedia reports that health insurers increase marketing direct mail offers to individuals by 18 percent in the past 12 months.
More strategically, the industry has pledged to put the brake on rising costs with a view to achieving savings totalling $2 trillion over 10 years. In 2007, health care spending in the US reached $2.4 trillion, according to the NCH and was projected to reach $4.3 trillion by 2016.
President Obama has called on the industry to present concrete steps they intend taking to achieve its savings goal. But even if it can, radical reform of the industry now seems to be virtually inevitable.