Health Insurers Run Scared, Expect Reforms to Shake Up Industry
Insurers are running scared at all the talk about overhauling the nation’s health insurance system. But even radical changes would more likely reshape the industry rather than destroy it.
In the most extreme scenario, many small- and medium-sized companies would die or be swallowed up by larger ones, and a few large companies would survive, insurance officials say.
The more modest reforms could create new or expanded business opportunities for many insurance companies. The reforms, however, also could speed up the consolidation already under way in health insurance, industry experts say.
The impact of a national health-care system on private insurers would vary widely, depending on how it is designed. The aim of most of the proposals is to provide health care for the 36 million people without insurance and to find better ways to control spiraling costs.
Despite public perception that insurers merely want to preserve their turf, industry representatives say what they fear most is no reform.
“The insurance industry is not for the status quo,” said F. Peter Libassi, a senior vice president at Travelers Corp. “The current political situation is extremely dangerous to the insurance industry,” because a move to dissolve the industry will grow if insurers do not meet society’s needs, he said.
At stake is a private health insurance industry of nearly 1,500 companies. Private insurers and employers who finance their own claims accounted for $217 billion of the total $662.2 billion in U.S. health-care expenditures in 1990.
Also involved are an estimated 921,200 people, including agents and brokers, who were working in the health insurance industry nationally at the end of 1991, according to the American Council of Life Insurance. Reforms also could affect thousands more in related businesses.
Despite the threat of possible reforms, insurers do not appear to be worried about survival. They are spending their time lobbying on the health-care issue and doing grass-roots public relations to influence the outcome of the debate.
“I do not believe we’re putting our heads in the sand,” said James W. McLane, chief executive officer of Aetna Health Plans. “We’re very committed to being a leading managed-care company. That’s where we’re applying our resources, which is our people, our time, our technology and our capital.”
Managed care refers to arrangements that insurers make with doctors, hospitals and other health professionals to try to restrain soaring medical bills. Health maintenance organizations, or HMOs, are the best known examples of managed care, which channel patients to specific networks of physicians or hospitals and aims to avoid paying for unnecessary care.
Insurers believe managed care will be a cornerstone of any new U.S. system.
“The more people you get under the managed-care umbrella, the more the hospitals and laboratories, physicians and pharmaceutical houses are going to have to be concerned with what they’re doing,” said G. Robert O’Brien, an executive vice president at CIGNA Corp.
Unless reforms attack the escalation of health-care costs, “We’ll be just rearranging deck chairs on the Titanic,” said Joan E. Herman, senior vice president and head of group life and health insurance at Phoenix Mutual Life Insurance Co.
An increasing number of companies have dropped, sold or shrunk their health insurance operations in the past several years. Aetna, Travelers and CIGNA have stopped selling health insurance to individuals, focusing on employer-sponsored coverage instead. Other companies have merged their health insurance businesses.
Stiff competition is bringing consolidation as well, as companies find it hard to earn enough profit to justify their investment in the business.
If the United States did opt for a single-payer system, such as Canada’s, private insurers probably would be employed to administer it, as they currently handle Medicare claims, industry executives predict.
Proponents of a single-payer system acknowledge it would mean layoffs, but note that thousands of jobs are being cut already by an industry frantically trying to reduce its expenses to become more competitive.
“We’re not trying to devise a health-care system that is going to benefit the health insurance industry as its No. 1 priority,” said Cathy L. Hurwit, legislative director for Citizen Action, a Washington, D.C.-based organization active in health-care, environmental and consumer issues.
“What we’ve seen, in 50 years of having a health-care system devised by private companies, has not served the public well,” she said. But, she said, private insurers would still play a role in any new system.
Some insurers, however, question whether it would be worthwhile to administer a national health system. They have had mixed experience with handling Medicare claims, and some have withdrawn from that business.
Aetna is the largest single processor of Medicare claims, but, McLane said, “I could not recommend that Aetna just proceed on being a processor, because shareholders would not put capital into the company if that’s what you did.”
Under its contract with the federal government, McLane said, Aetna is paid what it costs to process Medicare claims but makes no profit. Aetna has stuck with the business, though, because it has learned much about handling claims electronically, without paper.
Insurers also are worried about the various “play-or-pay” reforms, which aim at getting more employers to insure workers. Those proposals would require employers to buy health insurance for their workers or pay for them to be covered by a government-created pool.
Employers’ payments for the pool coverage would be based on some percentage of their payroll.
Supporters of the play-or-pay approach see it as a way of reaching the majority of the uninsured, who are low- and middle-income wage workers or are in families headed by workers. But insurers say it is nothing but a back door to a single-payer system. The plans, they say, would hurt small businesses.
That is because the payments for pool coverage would have to be set low enough so they would not overburden small businesses. That might make it more attractive for employers to choose the pool rather than pay ever-rising premiums, so the pool would grow and private insurance would shrink, insurance executives say.
Play-or-pay reforms could also lead to burdensome regulation of private health insurance, Libassi of Travelers said.
“When people are required to buy our products,” Libassi said, “it brings with it considerable government regulation as to what the product is, how it will be designed, how much it will cost (us) and what we can charge for it.”
Much more to the industry’s liking are “market reforms,” which would deal the softest blow to insurers.
The national reforms proposed by the Health Insurance Assn. of America aim to encourage more small businesses and self-employed people to buy insurance.
The plan would:
* Strip state-mandated benefits from health insurance policies to make them cheaper.
* Create a pool of insurers and self-insured employers to absorb the losses from insuring high-risk employers who previously could not buy coverage.
* Encourage states to establish pools to insure high-risk individuals.
* Provide a 100% tax deduction on premiums for the self-employed.
* Expand income limits for Medicaid eligibility to federal poverty level in all states.
Insurers also have been pushing state-level reforms that would guarantee that small businesses could buy insurance regardless of workers’ health problems, and restrict the rate increases that carriers can impose from year to year.
In addition, many insurers support changes in malpractice liability laws to discourage doctors from performing more tests and procedures than necessary in order to protect themselves from lawsuits.
Insurers’ proposed reforms, which rely heavily on getting more small businesses to provide insurance, do not assure universal health care, proponents of a single-payer system say.
