Health Care Insurers Still on Defensive

BOSTON ( TheStreet) -- The debate over health care reform pitted Democrats against Republicans, progressives against the tea party -- and a whole lot of folks against health insurance companies.

A little more than a year after President Barack Obama signed the Patient Protection and Affordable Care Act into law, those debates continue and health insurance plans remain in the cross-hairs.

Health insurers remain in the political cross-hairs, but industry experts suggest there is some scapegoating going on.

To be sure, there is plenty of ammunition for those with an anti-insurer bent. There are rescissions, denied treatments and multimillion-dollar executive salaries (even when an insurer is deemed a "nonprofit"). But can a case be made that insurance companies, blamed for rising costs both within and beyond their control, have been scapegoats?

Consider the rhetoric of Nancy Pelosi, D-Calif., speaker of the U.S. House of Representatives in the midst of the health care reform debate:

"They are the villains in this," she said of insurance companies and their lobbying efforts. "They have been part of the problem in a major way. It's almost immoral, what they are doing. Of course, they've been immoral all along. They are doing everything in their power to stop a public option from happening, and the public has to know about it."

One might ask, and the health insurance industry does, whether any other enterprise -- aside from, perhaps, oil companies -- has been so reviled for defending what it sees as in its best interest?

"Going into this debate, if you asked families and consumers what their No. 1 health care concern was, it would be rising health care costs that were making it difficult for employers and families to be able to ensure coverage and taking a larger and larger share of their budgets," says Robert Zirkelbach, spokesman for America's Health Insurance Plans, a national association representing nearly 1,300 companies, including Aetna ( AET), Cigna ( CI), Humana ( HUM) and United Health Group ( UNH). "Unfortunately, legislation focused on health insurance reform, rather than health care reform, and it largely ignored the issue of health care costs. All the focus has been on the health insurance industry as a way to distract attention away from the real issue, which is soaring medical costs."

"Unless stakeholders and policymakers focus on the true medical cost drivers, health care costs are going to continue to rise at an unsustainable rate," he adds.

"It is interesting how the government names things," says Rick Law, founder of Law Elder Law, an estate and elder law firm in Aurora, Ill. "They give things attractive names, so it is the Affordable Care Act even though it is anything but that. When you think about the layers of administrative mandates and bureaucracies, it can't possibly be about affordable care. It has other agendas, it only has the name. There is no way it can reduce the cost, so the question becomes was it ever meant to reduce the costs or to make it impossible for the private sector to compete? Is an ulterior motive for some of what is going to layered into the Band-Aids that private insurers will not be affordable so consumers will go to the government exchange?"

Some, of course, don't need the government to engineer such a scenario. Last year, WellPoint ( WLP) sought hikes in premiums of up to 39% for some customers in California, with the average customer facing 25% increases. Although that was beaten back, 193,000 individual Blue Shield policy holders -- again in California -- faced hikes of as much as 59% this year. The insurer said it would be losing money in the individual health care market anyway.

While conservatives continue to fight against what they have derisively dubbed ObamaCare with lawsuits, constitutional challenges and attempted budget blocks, there seems to be "a much greater focus on getting health care costs under control," Zirkelbach says. Nevertheless, health insurers remain on the defensive.

"With all the focus in Washington and the states on budget deficits and spending, health care costs continue to be a big part of that discussion," he says. "In order to get those costs under control, in order to put public programs on a fiscally responsible path, there is going to have to be recognition of what the true cost drivers are in those systems."

Seeking out, and reducing, those cost drivers will be ineffective so long as a focus remains on insurers, Zirkelbach says.

Recently, the Obama administration released proposed rules mandating that health insurance companies will need to file public documents to explain the need for any rate increase of 10% or more.

Health care reform "has capped health plan administration costs and profits," Zirkelbach says. "There is a new, federal layer of rate review on top of the rate review states are already doing. I think what those processes are going to show is that health plan administrative costs are not a main cause of rising health care costs."

He points to recent Fortune 500 rankings to bolster that case. In its analysis of profit margins by sector last year, insurance and managed care came in at 3.5%.

By comparison, the pharmaceutical industry was at 15.9% and medical products and equipment at 11.6%. Medical facilities were 5.3% and the "pharmacy and other services" sector was 5.8%.

"Largely overlooked" is the role insurers play in reducing health care costs, Zirkelbach says. "Health plans have incentives to make sure patients get the right health care, at the right place, at the right time to avoid more complications and higher costs down the road and have pioneered programs and services to help patients navigate the complicated delivery system."

Prevention and wellness initiatives (often workplace based) have had a "long track record of success," he says, adding that these efforts have focused on the great expenses that result from smoking and obesity.

"The evidence shows that 75% of health care costs are the result of complications due to overeating, lack of exercise and smoking," he says.

Recently, Congressman Paul Ryan, R-Wis., presented a budget plan that sought to reduce Medicare costs through a voucher program. By 2022, the government would issue fixed amount vouchers to 65-year-olds who would otherwise be Medicare beneficiaries. (It was poorly received -- polls showed 60% to 65% of adults opposed to changing Medicare -- and recently given orphan status by Republican leaders.)

"The government is saying, 'don't worry, we are going to be give you vouchers and you can go out and buy all the insurance you want,'" Law says. "But the public is asking, 'Who is going to sell us the insurance?' People are quite distrustful that they are going to be able to buy coverage."

Could this cost-cutting move eventually lead to private insurance companies being forced to add an aging, high-risk population to their pool with lower premiums than they might otherwise charge?

"A lot of different proposals we've seen so far haven't given a lot of specifics," Zirkelbach says. "It's hard to weigh in on the specifics of how they would work and what will or won't work."

He does point to what he views as the success health plans have had with Medicare Advantage, the private plans operating within Medicare.

"Our researchers found that readmission rates in Medicare Advantage plans are about 30% lower than the traditional fee-for-service Medicare program," Zirkelbach says, crediting follow-up care, prescription oversight, case managers -- even transportation services -- that fee-for-service plans don't offer.

"Those simple steps go a long way to ensuring that a patient gets appropriate follow-up care and avoids ending up back in the emergency room or hospital unnecessarily," he says. "Those are the types of things we need to be expanding upon. Unfortunately so much of the discussion ignores that aspect of health care delivery reform. It is a penny-wise, pound-foolish approach. If patients aren't getting the care they need now, all that's going to do is result in more complications and higher costs down the road. There is an incentive to ensure that patients are getting the care that they need, and that's why health plans have invested in these programs."

There are reasons insurers draw fire, though, whatever results they get. In 2009, a House Energy and Commerce Committee report showed Medicare Advantage providers were spending 10 times the amount per beneficiary as traditional Medicare, and that in three years, $27 billion had been spent on expenses unrelated to care -- including company profits, marketing, executive compensation and company retreats in places such as Hawaii and Cancun, Mexico.

Zirkelbach is happy to point out that's not the case now. The per-beneficiary amount is down to 10%, according to a March statement by the federal Medicare Payment Advisory Commission.

-- Written by Joe Mont in Boston.

>To contact the writer of this article, click here: Joe Mont.


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