The Treatment

Yes, It's Another Fishy Insurance Study

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By releasing a transparently hyperbolic and self-serving study on the effects of health reform, the insurance industry appears to have blundered in a big way. They discredited themselves in the eyes of the media elite, alienated potentially sympathetic members of Congress, and rallied Democrats around a common foe.

So what are they doing now? They seem to be trying the same stunt again, with a brand new study. It's not as deceptive as the last one. But it's not going to win any points for intellectual honesty, either.

This time the study's sponsor is the Blue Cross Blue Shield Association (BCBSA), rather than America's Health Insurance Programs. The hired gun accounting firm is Oliver Wyman, instead of PriceWaterhouseCoopers. But the message is the same as before: Pass reform, as currently envisioned, and insurance premiums will go way up.

The study, which BCBSA distributed to members of Congress today, raises three concerns:

1. In the absence of a strong individual mandate, young and healthy people will opt out and/or try to game the system, driving up premiums for everybody else.

2. Restricting the ability of insurers to vary premiums by age will mean dramatically higher insurance prices for the young.

3. Raising the level of benefits all policies must provide will make policies overall more expensive.

What's the end result? According to the report, these flaws mean premiums will jump by more than 50 percent. (A lot more, actually, depending on how you do the math.) Yowza!

But wait...how did Oliver Wyman arrive at that figure?

The big problem with the PriceWaterhouseCoopers study, you may recall, was that it treated certain elements of reform in isolation, leaving out key parts that would have changed the outcome. Unbelievably--or, perhaps, all too believably--Oliver Wyman does the exact same thing.

As several experts pointed out to me today--the study has been circulating privately for a while now--you can see decision this plainly on page two of the report, in this key passage describing the impact of a weak individual mandate:

This would translate into premium increases of approximately $1,500 for single coverage for a year and $3,300 for family coverage in today’s dollars for people purchasing new policies. Subsidies will entirely or partially offset these premium increases for some individuals.  Eight million current individual market members and 25 million uninsured earn between 100 and 400 percent of the federal poverty level and will have access to subsidies through the exchange. [Emphasis mine]

So reform will raise premiums, except that people making less than four times the poverty line will get subsidies offsetting the increases partially or entirely. Wait, doesn't that mean the average increase will be less than 50 percent--like, a lot less?

The report also gives no credit to any of the reforms designed to reduce health care spending, from delivery reform to the new excise tax on high-end insurance policies. You can see this quite clearly in the charts at the end of the report. At the bottom, each one has a box that says "This does not include the insurer tax." Admittedly, most of these savings will take time to materialize and the study, as best as I can tell, is primarily concerned with the immediate future. Then again, the study doesn't appear to give any credit whatsoever to the economies of scale and management that exchanges are expected to bring.

That's not to say BCBSA's are baseless. The argument about a strong mandate, in particular, is one with which many experts (and this writer) agree. Absent a sufficiently strong requirement to buy insurance, premiums could certainly go up faster than they would otherwise, although 50 percent seems awfully high. In addition, Oliver Wyman says the study doesn't take account of medical inflation, which, presumably, would actually cut in the other direction--i.e., it would make the figures seem worse.

And, to the credit of Oliver Wyman, the underlying calculations look more sophisticated than what PriceWaterhouseCoopers did for AHIP. This is the result of actuarial modeling, based on a large data set provided by Blue Cross plans from across the country. That doesn't make it perfect; even the best models don't really predict the future. But Oliver Wyman's basic method is sound. Or so the people who follow such things tell me. If BCBSA had avoided hyperbole and made more honest assumptions, they could have produced a study that was genuinely useful, albeit one that possibly made the case for more aggressive reforms rather than less.

But you have to wonder whether BCBSA really wants to be useful. Over the last few months, administration and Capitol Hill sources have repeatedly described the Blue Cross plans as among the most outwardly hostile to reform, apparently because they have the most to lose. The most radical changes in health care reform will come in the highly dysfunctional markets for people buying coverage on their own and for small businesses--markets that state-based Blue Cross plans happen to dominate.

One senior Senate staffer described the group's behavior to me in an e-mail:

If anyone is “Dr. No” in this debate it’s BCBSA and Wellpoint [which owns several of the Blue Cross plans]. They don’t come to the table with solutions, they come to the table with reasons (and numbers) on why everyone else’s ideas don’t work. They have the most to lose in reform since they are the largest carriers in the individual and small group market. ... they don’t want to change their business model.

By the way, I put calls and e-mails into BCBSA earlier today. When I hear back, I'll update this item.

Update: And here is the response from BCBSA.

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