This Ben Smith post really ties together the two arguments I made yesterday, namely that health insurers are extremely effective in shaping public opinion and that Fox News began referring to the public option as the government option to help sink reform, not offer a better explanation of the provision. As it turns out, that phrase first originated not with Fox or Frank Luntz, but AHIP — the insurance lobby powerhouse that shaped much of the law to its liking:

A former Republican Hill staffer closely involved in the battle over the health care plan — and concerned that credit go where it’s due — e-mails that the case for the linguistic shift first emerged in February in research provided the GOP by the health insurance industry group America’s Health Insurance Plans (AHIP).

AHIP focus groups from late February (whose findings appear in this document, provided by the former aide) found that voters like the idea of a “public” plan, and that the most negative term is a “government-run health insurance plan.”

A round of polling from AHIP in February and March confirmed that argument. “It is clear the most negative language to use when describing a ‘public plan’ is ‘a government-run health insurance plan,’” reads a presentation the group distributed, starting in March, to allies, Republican staff and opinion leaders and to conservative media, according to the former aide.

Sen. John Ensign was the first to pick up the talking point in a March 24 release blasting a “Government-Run ‘Public’ Health Insurance Plan.”

This is fairly significant because it once again reaffirms the existence of a messaging pipeline which stretches from the industry to the lobbyist to the lawmaker and to Fox — and not necessarily in that order. The effectiveness of this communication system was on full display during the health care debate, when Republicans went to the floor and literally read from the industry-sponsored critique of the health law and then again echoed their arguments about the causes of premium increases after the law passed. None of this happened through some coincidence or a meeting of the minds. More likely than not, Republicans and their friends in the media were reading from talking points they received directly from the industry.

But the industry’s influence stretched far beyond the phrase “government option.” Insurers went to great lengths to develop messages that shifted public perceptions against the provision. As this AHIP presentation demonstrates, almost all of the following phrases became standard Republican talking points against reform — and they came straight out of the industry’s polling:

In his book Deadly Spin, Wendell Potter explains how this process works through the help of public relations firms and a mass distribution of information to friendly news outlets (read: Fox News) and conservative think tanks who then place favorable editorials in the country’s leading newspapers. This example deserves a prime spot in the book’s second edition, which, with some more investigative work, could contain whole treasure trove of anti-reform phrases and talking points that originated with AHIP.

Read AHIP’s research on the ‘public option’ here and see their presentation here.

In Deadly Spin, insurance insider Wendell Potter describes how insurers rely on public relations firms to handle moments of crisis. The industry brought on APCO to discredit Michael Moore’s SICKO, worked with PR companies to shape their message during the health reform debate and consulted these companies when dealing with a death of a beneficiary to whom it had denied treatment. As Potter explains it, these groups have the contacts and the know-how to distribute industry talking points to editors, columnists, think tanks and reporters in a way that distorts their origin and boosts their legitimacy.

This approach is very effective in shifting public opinion and perceptions. The final health care law was fairly similar to AHIP’s original plan and it’s likely that the industry’s attack ads (funneled through the Chamber of commerce) and slew of negative made-to-order reports about reform probably had some impact in shifting the bill further to the right. With that said, it’s troubling to see that the industry is now re-grouping and looking for new PR representation as it moves into the all-important implementation phase of reform:

Five of the nation’s largest health insurance companies are taking a key step toward building their own inside-the-Beltway coalition to influence implementation of the new health law and congressional efforts to change it. The companies – Aetna, Cigna, Humana, UnitedHealthcare and Wellpoint – are shopping around Washington for a public relations firm to represent them, according to a source familiar with their work. Public Strategies and APCO are among PR firms that have spoken with the insurers, the source said.

“They plan to go public,” the person said. “They spent a ton of money [in 2009 on lobbying and the election] and liked being influential and they don’t want that to go away.”

The unfortunate thing for advocates of health reform is that with a Republican Congress — which came into power with the help of contributions from the industry — influencing the debate shouldn’t be terribly difficult, particularly when HHS is already “expanding quality bonuses to Medicare Advantage plans that receive only average quality ratings.” Agreeing, in other words, to the industry’s demands before they even settle on their PR representation. Imagine the other provisions insurers will be able to successfully water down if there isn’t serious push back on Capitol Hill and the advocacy community.

This morning, AHIP President and CEO Karen Ignagni appeared on Fox News to defend the notion that the health care law is substantially contributing to skyrocketing premiums. Insisting, quite correctly, that premium growth follows health care costs, Ignagni stressed that the law’s early benefits are similarly raising rates:

IGNAGNI: Health care premiums follow underlying costs. Costs are going up because providers are charging more, number one…two, people buying coverage individually in a bad economy have decided for their economic reasons they sometimes is no longer afford it, that means the cost to people in the pool goes up because it’s the people who have the highest cost who stay in. And then third, we’re adding new benefits, starting September 23rd, under the legislation, and new benefits follow cost. [...]

Our members are working very, very hard to try to do things as affordably as possible but for people who have coverage now, many of them are going to see increased coverage requirements, new benefits, new requirements, and that will require additional costs. Our members are trying to do this as affordably as possible.

Watch it:

One question Hemmer should have asked is just how much these “new benefits” cost. Because according to the folks at the Urban Institute the so-called September 23rd provisions could lead to increases of no more than 3% — and that’s the very highest estimates. Why then are insurers attributing 9% spikes to the health care law? And, if they’re doing everything they can to keep rates affordable, why are they so opposed to a bill that would allow the federal government to review their annual increases?

The duality of Ignagni’s argument is also striking. During this segment and throughout the health care reform debate, insurers insisted that they support market reforms — some of these are the September 23rd provisions you’re hearing about, getting rid of lifetime limits, eliminating recessions, and discrimination against kids with pre-existing conditions. So long as the law required everyone to purchase private health insurance coverage, they were on board. The mandate we got may not be as robust as insurers would have liked, but any kind of requirement would have taken several years to implement. Knowing all this, insurers talked up their support for market reforms to publicly present themselves as favorable towards regulation and change. Now, they’re using those very same provisions to exaggerate their premium requests.

Interestingly, following the passage of reform, insurers promised to cooperate with the implementation process. “Health care reform is not over. This is the only the end of the beginning,” Mike Tuffin, executive VP of AHIP said in June. “Whether we like it or not, the bill was passed. Now we must be reliable and effective implementation partners. We need to stay engaged. ”

I made the case against the notion that the health care law is forcing insurers to increase premiums here, but it’s also worth considering what insurers think the government should do about potentially unreasonable hikes. Here is AHIP’s Karen Ignagni, the industry’s top lobbyist, just six days ago on the National Journal’s Expert blog:

As final regulations are drafted in these areas it is critical that they be based on objective actuarial standards that take into account all of the factors that drive up health care costs. [...]

Rates that are actuarially justified should be deemed reasonable. This review should continue to be conducted at the state level because states have the experience, infrastructure, and local-market knowledge to review premium rates. If premiums are not allowed to keep up with rising medical costs, it would put at risk the coverage that patients rely on today.

Insurers would love to be held to no higher standard than “actuarially justified” in setting rates because all that phrase means is that an actuary has looked at the math and said it adds up. It doesn’t account for the fact that a lot of those costs go towards administrative expenses or marketing and it certainly doesn’t mean that this is the appropriate or best possible premium. Insurers on the individual market, for instance, can spend up to 40% of their premium dollars on non-health expenditures but under the “actuarially justified” standard this kind of spending would be acceptable.

Of course, insurers will have to spend more on care and less paperwork as reform is slowly implemented and in the meantime, I suspect many insurers are pulling out all the stops to take advantage of the system — while they still can.

Center For Public Integrity is reporting that five of the nation’s largest health insurance companies are considering forming a nonprofit organization to better influence the implementation of health care reform and bolster the industry’s image. “The insurers’ goal will be to help elect members who can be allies in the all important regulatory writing process now underway to implement key parts of the health care legislation that was signed into law earlier this year“:

The two sources tell the Center for Public Integrity they expect millions of dollars will be pumped into issue advertising in a number of races where candidates sympathetic to health industry concerns have a shot at winning.

“The objective is to make the House more accommodating to concerns that have been raised,” says one industry source. “They’re looking at toss-up candidates,” adding that the companies want to “focus resources to influence campaigns.” [...]

The sources stress that insurers are particularly concerned at this stage about a provision in the new law that mandates they spend 80 cents of every premium dollar received on the welfare of patients. The high financial stakes mean insurers have been pushing hard with state regulators to allow for broader definitions of what constitutes patient welfare expenditures. This issue is “probably the most important one right now,” explains a source.

The campaign may be an alternative to the industry’s long-time lobbying group America’s Health Insurance Plans (AHIP), which has represented the industry throughout the health care reform debate. Industry sources are telling Politico’s Pulse that “they feel the group wasn’t strong enough during the reform battle and they’re not convinced it has the muscle to deliver during implementation.” “The insurance industry sources argue that the industry got little out of the year-long Hill battle: the individual mandate is relatively weak and the industry is still getting hammered by reform supporters.”

AHIP has already promised to work alongside federal and state regulators to implement the new reform law “effectively” and to the extent that the industry’s goals intersect with the objectives of reform, a partnership with insurers could lead to some real progress. The government can rely on the industry and its expertise to adapt the payment reform models in Medicare to the private sector, develop administrative simplifications, or encrouage Americans to enroll in insurance coverage. As Jon Kingsdale, former director of the Commonwealth Connector Authority, has pointed out, the implementation process would probably benefit from this kind of industry input.

But if insurers are only looking to inflate their medical loss ratios by reclassifying certain administrative services as “medical” or undermining the rate review processes, then they’re working against the public interest and it will be up to us to publicly involve ourselves in the implementation process and counter the industry offensive.

Earlier this week, former President Bill Clinton visited the group that almost single-handedly brought down his health care bill in 1993 with their infamous Harry and Louise ads. Clinton delivered the keynote address at the America’s Health Insurance Plans (AHIP) conference in Las Vegas, where he thanked them for supporting reform the second time around:

“I want to thank you for your support of the healthcare reform movement,” Clinton said numerous times during his lengthy, largely economics-oriented speech, which dealt with everything from the BP oil spill, to a new bus system in Lima, Peru.

“You deserve credit for taking a different position on this healthcare reform debate than the last one,” he said. The Health Insurance Association of America, an earlier incarnation of AHIP, was largely credited with torpedoing Clinton’s reform plans with their multimillion dollar “Harry and Louise” ad campaign.[...]

“I agree with you that we should have done more on cost-control,” he said, but he added that the law’s new insurance exchanges — which will begin operations in 2014 — will spur competition between insurance companies and lower costs.

“Americans tend to blame insurance companies for things that are really probably providers’ faults,” he said.

Clinton certainly isn’t wrong in suggesting that under the leadership of Karen Ignagni, the insurers adopted a more conciliatory tone towards reform. But he’s overstating the intensity of their support. In December 2008, the health insurers issued their own health care plan and announced that they were willing to accept new market regulations in return for a strong individual mandate, a concession they had already made 16 years earlier.

Recall that in December of 1992, the insurance lobby, then known as Health Insurance Association of American (HIAA), called for “a new Federal law that would require coverage for all Americans, define the basic set of benefits, and try to contain health care costs by limiting tax breaks for the purchase of insurance.” Under their proposal, everyone would have to buy ‘an essential package’ of benefits and could receive coverage “regardless of a person’s medical history.”

The industry ultimately rejected reform because it feared that Clinton’s regional alliances would bar some smaller insurers from the marketplace, and it opposed the President’s premium growth constraints and the community rating provisions. The lobby went on to “plant seeds of doubt” about Clinton’s reforms and organized countless grassroots campaigns, hired field operatives in six states whose lawmakers were expected to be swing votes, and recruited ground troops from members companies’ networks of employees, managers, and agents. By the end of its effort, HIAA had generated more than 450,000 phone calls, visits, and letters to Congress.

In 2009/2010, industry support for reform may have certainly been more vocal and sustained, but it followed a very similar trajectory. From September to December 2009 — while publicly embracing the idea of universal coverage — six of the nation’s biggest health insurers began quietly “pumping big money into third-party television ads aimed at killing or significantly modifying the major health reform bills moving through Congress.” Watch a compilation of some of these ads:

In October of 2009, the industry released several studies arguing that the weak personal responsibility requirement, taxes on health care providers, spending reductions in Medicare and taxes on high-value health plans will increase “the cost of coverage for both single and family policies in the individual, small group, large group, and self-funded insurance markets.”

Despite all these efforts, however, health insurers are now promising to work alongside federal and state regulators to implement the new reform law and hold off efforts by progressives to re-introduce the public option or single-payer proposals.

Despite efforts to torpedo health care reform last year, health insurers are now promising to work alongside federal and state regulators to implement the new reform law and hold off efforts by progressives to re-introduce the public option or single-payer proposals. Speaking at the CIAB’s 9th Annual Employee Benefits Leadership Forum last week, Mike Tuffin, executive VP of AHIP, implied that the industry was very happy with the final version of the bill:

“Health care reform is not over. This is the only the end of the beginning,” Mr. Tuffin said. “Whether we like it or not, the bill was passed. Now we must be reliable and effective implementation partners. We need to stay engaged. The single-payer and public-option supporters have not given up,” he warned.

Insurers have signed on to a 50-state campaign called Enroll America, organized by consumer advocate Ron Pollack of Families USA. The campaign will encourage Americans to comply with the individual health insurance mandate by January 1, 2014 by making it easy for those who already qualify for Medicaid or private insurance subsidies to sign up. “It will raise money to hire local staffs, which will push state governments to create user-friendly enrollment systems. The goal is to allow people to sign up when they see a doctor or apply for other benefits, with simple applications printed in multiple languages.” To be sure, insurers’ efforts to implement reform are guided by self-interest. The industry stands to make millions from the mandate and is already encouraging HHS to adopt fairly loose regulations of its businesses.

Regulators and politicians certainly shouldn’t fold to industry demands or abandon their efforts at securing progressive legislation, but one can’t deny the fact that in implementing reform, insurers can provide critical technical expertise or that their participation in enrollment efforts will only improve implementation. As Jon Kingsdale, the director of the Commonwealth Connector Authority, has observed, “Brow-beating various industries may be good partisan politics, but the Health Connector has worked diligently at creating solid, long-term working relationships.” Those same partnerships will be essential if the health implementation effort is to succeed.

Of course, if insurers are truly interested in dissuading Congress form adopting reforms like the public option or national rate review, they would stop imposing headline grabbing premium increases and paying outrageous CEO bonuses and salaries. Efforts to milk the old system for all its worth could build public (and Senate) support for tougher reforms.

Over the past year, as health care premiums have skyrocketed and more Americans became uninsured, the profits of the health insurance industry have soared. WellPoint — the nation’s largest insurer — “posted an eightfold increase in profit for the fourth quarter,” and UnitedHealth recently reported that it’s first quarter profits increased by 21%. Insurers and their representatives, however, continue to insist that their earnings make up only a tiny fraction of overall health care spending and argue that policy makers should focus their cost containment efforts on other industries.

During Tuesday’s hearing before the Senate Health, Education, Labor, and Pensions Committee (HELP), AHIP President and CEO Karen Ignagni explained that “according to government data — just to level set — we’re 4% of national expenditures. The profits of our industry, according to Fortune Magazine…in 2008 were roughly 2%. In 2009, were about 3.2[%]. That’s where we are relative to other stakeholders in the health care sectors that have 3 and 4 times those levels,” Ignagni said.

But at that same hearing, Michael McRaith, Director of the Illinois Department of Insurance, argued that insurers have a certain level of discretion in how they report their profits and could manipulate the books to show lower figures:

McRAITH: We regulate insurance companies at the low-end of their capitol levels. We do not regulate what is too much capital or surplus. A company can decide that surplus is not profit. So when a company tells you it’s making 2.2% profit, what it’s telling you is that the discretionary decision that’s been made about how to report that number — it is not a reflection of capitol received or the financial strength of that individual company, necessarily.

Watch a compilation from Tuesday’s hearing:

As one former CFO of a major insurer explained to me, all insurers are required to maintain “incurred but not reported” reserves (IBNR) and they use actuarial statistics to “guestimate” how much of that premium is “reserved” for future claims that have not yet occurred and/or not yet reported over the expected term of the policy, and how much of the remaining premium portion is designated to the margin “from which expenses are deducted.”

“Insurers report their reserves to State Insurance commissioners annually who review them to gauge the financial soundness of each insurer. While actuaries have well defined methods for computing these reserves, there is always a bit of wiggle room. And I suspect that ‘wiggle’ is what McRaith is talking about. And the risk here is where insurance commissioners can lean towards consumers or towards insurers when assessing the adequacy and accuracy of reserves. Overstating reserves understates earnings and vice-versa,” the CFO said.

In other words, insurers are only as rich as their comparison. As Sen. Jack Reed (D-RI) explained during the hearing, “profit [earnings as a percent of revenue] is one measure, but return on equity is another measure. You can compare them not only to device makers, and other parts, but if you compare them to the manufacturing sector, insurance is doing pretty good I think. So it’s all the point at which you’re comparing.”