Why Health Insurers Should Support the House Bill

AHIP, the health insurers’ lobbying arm, put all of their eggs in one basket of health care reform.  Max Baucus’s basket.  Unfortunately, they have come to learn the Senate Finance Committee has not followed through on their hopes.

AHIP has spent the last week touting largely discredited reports and spreading scare tactics such as assertions that the finance bill will raise premiums by $4,000.

Their main problem with the changes in the Senate Finance bill is the weakening of the individual mandate penalty.  The primary reason insurance companies were in such strong support of health insurance reform several months ago was the acceptance that they would gain an additional 46 million insurance policy holders if every uninsured were required to purchase coverage.  A large percentage of this population is young and healthy and would continue to pay insurance premiums without taking advantage of the offered benefits.  The insurance companies took the bet that these new beneficiaries would out-weigh the cost of covering the sick, expensive patients that they have been trying so hard to rescind and refuse to cover.

The Senate Finance bill a month ago did look good to them.  It had the strongest individual mandate penalty, it had the risk pooling they wanted, and they were allowed to vary insurance premiums by 7.5:1.   Now, however, the bill has a very weak individual mandate with a gradual increase of $200-$750.  “Young Invincibles” are allowed to buy into seperate plans which would mean they would not cover the cost of the sicker patients.  Finally the community rating has been lowered to 6:1 meaning the insurance companies are restrained in the amount they charge.

Over the last week, the insurers have dug themselves into a hole.  Their reports, instead of the intended effect of scaring the public, have been criticized by everyone from the White House to your neighborhood blogger. They have backed themselves into a corner by announcing all they want is a stronger individual mandate penalty, portability across state lines, and insurance market reforms.

The House bill has all of these things.

The penalty is 2.5% of modified gross income with a maximum of the national average premium.  This is a very strong mandate penalty that does not hurt lower income populations.  The national exchange set up in the house bill is equivalent to portability across state lines because insurers will not have to abide by individual state laws and change their plan standards for each state.  The insurers don’t really want market reforms, rather they see those as something they are giving up for the sake of reform.

Of course, they’ll have to get over their fear of the public plan and the competition that will cause.  But at this point, the House bill will benefit what the insurers insist they need more than the modified Senate Finance bill.

By Emma Sandoe

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