Big Insurers Cast Wary Eye on Clinton’s Health Plans : Medical costs: While not absolutely against change, no firm has embraced the sweeping reforms he envisions.
As President-elect Bill Clinton faces up to the task of keeping his promise of affordable medical care for all Americans, he will encounter a harsh reality. Health care means big bucks for some of the nation’s most powerful businesses, and they are prepared to fight mightily to defend their interests.
A case in point: the insurance industry.
Already taking steps to protect their profits, many insurance companies have hired high-priced lobbying firms to wage quiet battles of persuasion both in the halls of Congress and with the incoming Administration. In the words of one insurance executive, the largest companies have “swarmed all over Washington, buying any lobbyist they can to corner the market.”
Many insurers also have increased their campaign contributions to key members of Congress by hundreds of thousands of dollars. And one company has launched a multimillion-dollar series of television advertisements to offer an alternative to Clinton’s campaign proposals.
The insurers are not opposed to making some changes in the system, and many companies have put forth their own fairly dramatic ideas for reform. Just last week, the Health Insurance Industry Assn., which represents some companies, for the first time endorsed the concept of coverage for all Americans. But so far, no insurer has embraced the sweeping changes envisioned by Clinton.
The prospect of a monumental restructuring of the nation’s health insurance system has even created deep fissures in the normally united industry--a development that could further hamper prospects for a peaceful compromise. Industry giants such as CIGNA and Aetna are now pitted against the small insurers, who claim efforts are afoot to drive them out of business.
Insurance companies are not alone. Physicians, nurses, hospitals, pharmacists, drug companies, employers and even consumers have begun gearing up to protect their profits and their livelihoods.
But of all the interest groups involved, none feel more threatened than the insurance companies--with good reason. During his campaign, Clinton pledged to “take on the insurance industry” by forcing firms to abandon some of the time-honored practices that have been blamed for driving up costs and leaving more than 35 million Americans without health care coverage.
While Clinton’s plan stops short of replacing private insurance with a government-run system, the insurers believe even the reforms he has proposed could force many of them out of business and forever rewrite the rules for those that survive.
The insurers believe they have no choice but to mount a strong counteroffensive. John Gummere, chairman and chief executive of Phoenix Home Life Mutual Insurance Co., said his firm is lobbying against the Clinton plan because “health insurance is a significant part of our bottom line and we intend to preserve it.”
Industry leaders also argue that they will make a positive contribution to the forthcoming debate over financing health care. Indeed, some say they are on the cutting edge in designing new, more affordable mechanisms for providing medical care.
Critics, on the other hand, contend the insurers’ stance is an obstacle to true reform. Robert M. Brandon, political director of Citizen Action, a group advocating national health insurance, denounces the companies as “more interested in maintaining their enormous profits than in protecting the health care of the American people.”
In criticizing insurance companies, Clinton chose an easy target. Polls show many Americans blame the industry for refusing to insure people who change jobs or develop chronic illnesses, for increasing the out-of-pocket costs that consumers must pay and for unnecessary paperwork.
Insurance companies, many of which have their headquarters here in Hartford, themselves acknowledge that they are responsible for some of their own problems by failing to institute voluntary reforms that could have prevented a national crisis.
“Clinton was right in taking on the insurance industry,” said James F. Meehan, assistant general counsel at CIGNA. “There is plenty to criticize about the insurance industry.”
In a speech outlining his health care reform plan shortly before the election, Clinton pledged to create a system that would provide coverage for all Americans, control costs, establish a minimum benefit package, encourage the development of community-based “managed care” networks of doctors, hospitals and insurers and outlaw many unpopular insurance industry practices.
The plan calls for employers to provide insurance for their workers and for the government to provide private insurance for non-workers. Small businesses that do not now offer health insurance for their workers would be given tax incentives to purchase coverage through specially organized groups.
Insurance industry executives, most of whom had endorsed President Bush’s more limited health care reform plan, were relieved that Clinton did not embrace the idea of a Canadian-style national health care system. At the same time, they strongly oppose the President-elect’s notion of appointing a national board to impose price restraints on health care.
Jon M. Glaudemans, Aetna assistant vice president, argued that America’s outmoded health care delivery system cannot be reformed under a system of price controls. “If you look at the history of price controls,” he said, “they inevitably lead to a mismatch of needs and resources. It doesn’t work.”
The insurers think Clinton can be persuaded by forceful lobbying to move away from the concept of price controls. They note that their opposition to such controls is shared by other strong lobbying groups, including the labor unions and the American Assn. of Retired Persons.
Instead, they propose a system of “managed competition” that would give all Americans a choice between any number of community-based managed care networks, all of which have agreed to provide care at a fixed annual cost. This system would rely on free market forces, rather than artificial controls, to bring down the price of health care.
While Clinton supports managed competition, his top adviser on health care matters, Judith Feders, argues that competition alone cannot control health care costs. In addition, polls show that nearly three-fourths of all Americans support price controls.
Clinton has not said how his plan would be financed. The insurers propose that the government tax all health care benefits for workers that exceed a basic package established by the government.
In an effort to bring the Clinton Administration, the Congress and the public around to their point of view, the big insurance companies are cooperating in a massive public campaign to sell the concept of managed competition.
Aetna has spent millions of dollars on a television and newspaper advertising campaign to promote “the managed care solution.” The ads encourage interested citizens to call an 800 number to receive a brochure explaining the concept. Since the ads debuted in September, the company has received 15,000 requests.
At the same time, Aetna retains at least 10 different professional lobbying organizations, including former Bush adviser Deborah Steelman, a recognized expert on health care. Likewise, the Metropolitan Life Insurance Co. has at least five Washington lobbying firms on retainer. And all the big insurers maintain lobbyists on their payroll.
In addition, Aetna recently hired Vanda B. McMurtry, former staff director of the Senate Finance Committee, to fill a newly created position of vice president for government relations. Aetna sees McMurtry’s knowledge of Congress as an asset in the upcoming legislative battle.
Campaign contributions by insurance companies have risen substantially since it became apparent that the new Congress would take up health care reform.
Prudential contributed $349,960 to congressional candidates in the last election, an increase of more than $100,000 over the previous election, according to an analysis of Federal Election Commission records by Citizen Action. Metropolitan gave $245,341; Massachusetts Mutual Life, $243,795; Northwestern Mutual Life, $198,963; CIGNA, $192,100, and Travelers, $188,250. With the exception of Travelers, all of these contributors gave more money in 1992 than in the 1990 election.
When they call on members of Congress, at least some insurance lobbyists are quick to mention their contributions. In a meeting with Rep. Robert T. Matsui (D-Sacramento) last July 29, Howard Paster, lobbyist for Timmons & Co., who represents Phoenix, emphasized that the company had contributed to the congressman’s campaign.
Matsui confided later that because lobbyists do not normally mention campaign contributions, he was surprised by Paster’s bluntness.
But despite the common threat it feels, the insurance industry is not unified in its lobbying strategy. The smaller companies complain bitterly that the reforms being proposed by the larger firms are simply designed to increase their own market share.
Unlike the big insurance companies, which already have established many community-based managed care networks across the country, most of the smaller firms are still in the business of writing indemnity health insurance policies that reimburse individuals for their doctor and hospital bills. In addition, the smaller firms are often accused of “cherry picking,” or trying to insure only the healthiest people.
Gummere, a principle spokesman for the small insurers, insists that CIGNA, Aetna, Metropolitan, Travelers and Prudential--the “Gang of Five,” as he calls them--are promoting managed competition in an effort to drive their small competitors out of business. The smaller firms say they lack the resources to establish such networks.
“The large companies, under the guise of managed care, have been going for the brass ring, trying to corner the market,” Gummere said. “It’s altogether possible, if these large companies have their way, we will be out of business.”
The bigger insurers acknowledge that they do see some new business opportunities in health care reform. But the industry giants say smaller firms, especially those that have resisted the concept of managed care, are already in jeopardy and that health care reform will only hasten the inevitable.
“It would be an acceleration of what’s already happening,” said Meehan. “It’s not an issue of large insurance companies versus small. It’s an issue of whether people are willing to invest in what we call health networks. The ones that are going to be left behind are those that want a historical, straight indemnity function where all they do is pay the bills that come in the door from the providers.”
The big insurers also differ with the smaller ones on a proposal embraced by Clinton that would prevent companies from charging consumers different premiums based on such factors as the size, health record, gender or age of an employee group. Many of the smaller insurers insist that without the ability to set different rates for different groups they would go out of business.
This split in the insurance industry became apparent recently when Aetna and Metropolitan abruptly resigned from the Health Insurance Assn. of America, which represents about 270 companies. CIGNA already had dropped out of the association nearly a year earlier. Without these three firms, HIAA has lost at least $3.5 million in annual revenues.
Last Thursday, in an effort to answer criticism from the big insurers, HIAA revised its position on a number of issues, calling for mandated coverage for all and allowing for a limited role by government in price-setting. Even though the group still opposes many aspects of the Clinton plan, the shift was hailed as a breakthrough by the President-elect’s advisers.
In their favor, the smaller insurance companies argue that their views are more closely aligned with those of the general public. Gummere predicted that the notion of managed competition will suffer a setback when consumers realize that it will limit their choice of doctors.
So far, however, the larger insurers are finding that their effort to get an early start in the lobbying game is paying off in Washington. Meehan said he gets a positive response from politicians when he tells them that his company does not oppose some of the stringent measures that the smaller insurers have rejected.
“Being in the vanguard has helped us,” he said. “People in Washington are surprised to learn that we don’t want to exclude people from getting health insurance just because they could get sick. From a lobbying perspective, we have been very successful in convincing people that we are part of the solution.”
But Carl Copp, an insurance industry analyst for Conning & Co., thinks insurance industry executives, for all their hand-wringing and political posturing, are still underestimating the impact that Clinton’s health care reform will have on their business.
“While they may have their ear to the ground in Washington, they do not appear to be as concerned as they ought to be,” said Copp. “The industry is looking for an incremental approach to reform, but the Administration may be driven to do something more drastic.”
