The economic stimulus bill is dead, and blame is being cast about in Washington like so many lines off a Jersey shore charter. But the biggest losers may not be Senate Majority Leader Tom Daschle and House Speaker Dennis Hastert. No, the debacle's largest victims may prove to be giant health insurance companies, like Aetna ( AET), UnitedHealth Group ( UNH) and Oxford Health Plans ( OHP). After strenuous negotiations, Republicans and Democrats ultimately reached agreement on many components of the stimulus package: extending unemployment benefits, accelerating depreciation allowances for companies and speeding up the reduction of marginal tax rates. Health care turned out to be the dealbreaker.
The Trouble With Health Insurance
Both parties recognize an emerging problem -- if not a full-fledged crisis -- in health insurance. Advocacy group Families USA says that between March and November, 911,680 Americans lost both their coverage and their jobs. Today, some 40 million Americans lack insurance, 10% more than in 1991. As layoffs continue, that number will probably rise. With premiums soaring at double-digit rates, companies large and small are passing costs along to workers and reducing coverage. Predictably, the two parties took starkly different ideological approaches to the problem. The Democrats want the federal government to provide a direct subsidy of up to 75% of premium costs, which would allow laid-off employees to continue paying for their existing policies. Republicans want to give the unemployed a tax credit for up to 60% of premium costs and allow them to shop in the marketplace for coverage. Each solution has serious political and logistical hang-ups. The Democrats' proposal is expensive and involves direct government expenditures at a time when revenues are declining and spending already appears to be out of control. The Republican proposal is similarly unrealistic. Tax credits are of limited utility to unemployed people, many of whom don't face significant tax liabilities. Besides, many insurance companies either refuse to deal with individuals or turn down those applying for coverage. I doubt many insurers are clamoring to sell individual policies to middle-aged workers laid off by Qwest or Bethlehem Steel. Finally, even with the tax credits, people would still have to shell out hundreds of dollars from their own pockets. My Oxford family HMO policy -- hardly a premium product -- costs $980 per month! Cheaper options are available in New York, but barebones coverage costs from $500 to $600 per month. Even with a tax credit, people on extremely limited incomes may face the choice of paying their rent or paying for insurance.
So why is this bad news for insurers? Take a Sumo-like policy deadlock, add to it a rising uninsured population and spiraling premiums and drug costs, throw in an industry with a poor image and rising profits, and stir in an election year -- and you've got a recipe for mayhem. Oh, and industry bete noire Hillary Clinton is now a senator. Once the war in Afghanistan and the Enron debacle fade from public consciousness, health care will be there to fill the vacuum. And if history is any guide, Democrats seeking to take back the House will seize on health care as a blunt instrument -- and attempt to bash their opponents' brains in with it. Back in 1991, a political off-year, an obscure political consultant named James Carville advised Democrat Harris Wofford, who was seeking a Pennsylvania Senate seat, to focus his campaign almost exclusively on health insurance. Wofford took heed and upset his Republican rival, former Attorney General Richard Thornburgh. Catapulted into national prominence, Carville hooked up with a certain Arkansas governor, and the rest is history. In the early 1990s, health insurers successfully fought off a far-reaching reform program. But eight years after the now-infamous Harry & Louise advertisements aired, Sen. Clinton and her allies may be looking for payback. So HMO executives and investors should be prepared for new scrutiny. In the spring and summer, everything from executive compensation to rising premiums, from political contributions to their seeming inability to contain costs will become political fodder. Such debates generally put Republican candidates on the defensive. After all, when the economy isn't growing, populist corporate-bashing finds traction -- even on the right side of the aisle. (Kenneth Lay's Enron was practically an adjunct of the Republican party, yet some of the harshest criticism of the company and its executives has come from Republican lawmakers.) If current trends continue, congressional members in close election fights may be unlikely to stand up for Big Insurance next fall. The continuing crisis in insurance is a longstanding problem as well as an embarrassment. Even amid the longest peacetime expansion in history, we failed to make a serious dent in the population of uninsured. And it is nothing less than shameful that many millions of full-time workers lack access to health insurance. But in a matter of weeks, this thorny policy problem will become a political problem. The prospect is dispiriting. Rather than attempting to offer practical solutions, both sides are essentially offering only unworkable fixes, rooted more in ideology than in sound policy. And President Bush, who understandably has other things on his mind, is unwilling to enter the fray with an original proposal. While the country may be united when it comes to foreign policy and the war, the divisions on domestic policy are as wide as the Great Salt Lake.