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Olympia Snowe Joins Senate Finance Dems To Support Taxing Health Insurer Profits

By Igor Volsky on July 16, 2009 at 10:40 am

"Olympia Snowe Joins Senate Finance Dems To Support Taxing Health Insurer Profits"

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snoweinsurertaxYesterday, three Democrats on the Senate Finance Committee — Sens. Chuck Schumer (D-NY), Robert Menendez (D-NJ), and Debbie Stabenow (D-MI) — announced a plan to make health insurers absorb somewhere between $75 billion and $100 billion of the cost of reform by taxing insurer profits. A Republican on the committee, Sen. Olympia Snowe (R-ME) — who is scheduled to meet with the President today — “said she would also support such a tax,” Congressional Quarterly is now reporting:

Schumer and others said they did not know how they would prevent insurers from simply passing the tax on to their customers in the form of higher premiums. But the point, they said, is to make the industry contribute financially toward an overhaul that is expected to result in insurers gaining millions of new customers…. “We need the insurance industry to step up to the plate and be part of the solution,” Schumer said at a news conference. “It makes sense that private insurance companies, who are going to gain 40 million new customers as part of health reform, should pay their fair share.”

Insurers that operate in the unregulated individual market are infamous for denying coverage to individuals with pre-existing conditions, rescinding coverage, offering subprime plans and jacking up premium rates. In an interview with PBS’s Bill Moyers last Friday, former health insurance executive Wendell Potter explained how insurers are primarily driven by profits and generally seek to “drive down” costs by refusing to insure “unhealthy people” — a tactic borne out by the fact that 47 million Americans currently lack health insurance. “Big for-profit insurers have hijacked our health care system and turned it into a giant ATM for Wall Street investors,” Potter, said.

In fact, insurance is perhaps the only business that earns more money by offering less product and excluding customers. Since this business model has contributed to the problem of the uninsured and the costs now associated with providing care to those who were denied coverage, insurers are responsible for contributing to the costs of reform. As Schumer points out, “it makes sense that private insurance companies, who are going to gain 40 million new customers as part of health reform, should pay their fair share.” Insurers have agreed to some concessions — agreeing to accept everyone who applies for coverage, ending the industry practice of denying coverage to individuals with pre-existing conditions, (which would cost approximately $100 billion) — but the new infusion of customers would offset any profit loss, Schumer is arguing.

The challenge is figuring out how to tax insurers while ensuring that they don’t pass on the increase to consumers in the form of higher premiums. Competition within the Exchange (some of it hopefully coming from a robust public option) might pressure insurers to maintain or lower premiums, but you can also get at profits by requiring insurers to spend a higher percentage of their revenues on providing medical care, instituting certain administrative savings (standardization of billing forms, greater efficiency, better use of health information technology), or capping CEO salaries.

After all, if the federal government is investing some $700 billion to provide people with subsides to buy (mostly) private coverage from the Exchange, then it should have a say in how the industry does business. Why should the CEO of UnitedHealth Group receive $1.1 billion in stock options (as he was in 2006), Cigna’s Health Insurance CEO H. Edward Hanway earn a total compensation of $30,016,000 or Aetna CEO Ronald Williams make some $38,860,000?

The point is, for an industry that is counting on government reform to save its failing business model, ponying up some $100 – $200 billion to cover the cost of reform is still a sound business decision.

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