Insurers Make Case for Public Option

By
demanding that the Baucus health-care bill toughen the coercive
penalties to force young Americans to sign up for private insurance,
industry lobbyists have inadvertently made the most dramatic argument
to date for including a strong public option in any health reform law.

After all, the bill sponsored by Senate
Finance Committee Chairman Max Baucus, D-Montana, already was widely
regarded as industry friendly. It had scrapped the public option, a
lower-cost government-run insurance alternative that the industry hated
because it would create strong competitive pressures.

Plus, there appeared to be plenty of
goodies for the industry. The Baucus bill, which is expected to clear
the Finance Committee on Tuesday, would impose "an individual mandate"
on Americans, requiring them to buy insurance or face a government
fine. The bill also contained government subsidies to help
modest-income citizens pay for their insurance.

So, the industry stood to gain an estimated 27 million new customers and get federal subsidies to boot.

But industry lobbyists began to send signals
last week that they wanted more. They feared that the government fines
would not be coercive enough to force many healthy young Americans to
sign up for insurance, meaning that many new customers might be just
the ones the industry doesn't want -- people who are sick and need
medical attention.

Without more severe government penalties
on young Americans, the lobbyists warned that the industry would jack
up rates on everyone.

"Between 2010 and 2019 the cumulative
increases in the cost of a typical family policy under this reform
proposal will be approximately $20,700 more than it would be under the
current system," said Karen Ignagni, president and chief executive of
America's Health Insurance Plans, the industry's lobbying arm which
commissioned the price study by PriceWaterhouseCoopers. [Washington
Post, Oct. 12, 2009]

In other words, the private health
insurance industry is demanding more concessions in the reform bill --
particularly stiffer fines on Americans who balk at signing up for
health insurance -- or the industry will make health insurance even more
expensive for Americans.

Yet, while the industry may view its new
hardball tactics as smart politics, its threats of sharply higher
insurance premiums may backfire. The admission that the industry can't
control costs without greater government coercion on citizens may end
up simply dramatizing the value of a strong public option.

The public option, which could cut costs
by piggybacking on the existing Medicare bureaucracy, was always the
one possible route to substantial savings. Based on Medicare's
experience, a public option could operate with an overhead of around
two percent compared to the 20 percent or more that private insurers
take for administrative costs, executive salaries and profits.

If a public option were available to
individual consumers and small businesses -- as four bills that have
passed other congressional committees call for -- then customers could
get coverage at a lower price and thus the mandate to buy insurance
would be less burdensome.

Rather than strong-arming Americans to get
private insurance by imposing stiffer fines, Congress might find the
public option a far less draconian alternative, one that would enable
more people to afford health insurance and thus make the need for
penalties less necessary.

That, of course, was the reason private
insurers worked so hard to demonize the public option as "a government
takeover" of medicine and lobbied aggressively to make sure it was
rejected by the Senate Finance Committee.

Yet, even with the public option stripped
from the Baucus bill, Congress finds the industry ratcheting up the
pressure to get more concessions or to kill the reform package
altogether.

The industry's move, however, represents a gamble, in that Democrats might finally recognize the potential for their own political suicide
if a new health-reform law turns the federal government into the
enforcer for an industry that has long prospered from the business of
paying as few medical bills of sick Americans as possible.

Rather than using fines to muscle more
citizens into the arms of private insurers, the Democrats might finally
rebel against the lobbyists and make sure that a strong public
health-insurance option is available as an alternative to private
policies. Just the outcome that the industry feared most.