The health sector has kept quiet throughout the GOP’s futile effort to repeal the Affordable Care Act in the House, saving its ammunition for the more serious campaign of changing and tweaking parts of the law. This morning Karen Ignagni, the insurance industry’s chief spokesperson, offered a glimpse into what insurers will be lobbying for in the months and years ahead. She hinted that the industry isn’t interested in repeal and is instead focusing on the following issues. Watch it:

Let’s go through it piece by piece:

- Eliminating new taxes on the health insurance industry: Beginning in 2014, the health law imposes an annual fee on the health insurance sector, but Ignagni refers to this as “an unprecedented sales tax on small businesses and individuals” — “a health care sales tax.” Unless the industry offsets the increase through innovation, some of the costs may be passed down to employers and employees — but both of these groups will be receiving tax credits to offset the purchase of coverage. Generally speaking, in a law that pays for its coverage expansions and reduces the deficit, somebody has to pay more if others get more.

- Wants to charge younger people more for insurance: Ignagni claims that “anyone under 40 would see a huge increase” in costs and the industry has already been lobbying the Department of Health and Human Services to adopt a transition period for the age-rating provision of the Affordable Care Act. Under the law, beginning in 2014, insurers will have to guarantee coverage to everyone who applies and charge older people no more than three times what younger individuals would pay. But the industry is saying that if it had to adopt that change instantaneously in January of 2014, younger individuals would face big price increases. This argument isn’t particularly convincing, however, since many young people will actually pay less for coverage because they’ll qualify for subsidies and possibly even Medicaid. That will significantly increase participation among young adults, improve the risk pool, and probably outweigh any negative effects due to age rating. My post on that here.

- Essential benefits packages should be very narrowly defined: Ignagni claims that “if the essential benefit package is so broadly structured that these individuals and small businesses are going to find that the current proposals are unaffordable and they’re going to have to buy up, that is going to be a third leg of the stool in terms of cost increases. ” While there is a reasonable argument that regulators shouldn’t overfill the minimum benefit package and give insurers flexibility in design, you don’t want them to have so much flexibility that they can “continue to compete based on risk-selection, rather than price and quality as intended by the ACA and what is critical for a better functioning health insurance market.” My post on that here.

During the interview, Ignagni was also asked about Wendell Potter’s new book criticizing the industry and its PR practices. Ignagni — who Potter describes in the book as an incredibly effective spin-master — said she hadn’t read the book and didn’t address Potter’s accusations.

AHIP President and CEO Karen Ignagni appeared on Fox Business on Wednesday to lay out the insurance industry’s opposition to the Affordable Care Act. Ignagni wouldn’t say if insurers support repealing the law outright, but highlighted several provisions that she claims would increase costs for small businesses and individuals. She maintained that the law needs to be fixed:

IGNAGNI: I think the most important thing, Neil, is that what is being telegraphed all over the country is that people are worried about costs. [...] Small businesses in 2014 are going to face an unprecedented sales tax on their health insurance premiums….. Right now, going, starting January 1, there are new regulations going into effect that cap administrative costs. It’s going to be happening overnight, a shock to the system. And it is going to lead to a number of disruptions all over the country. [...]

CAVUTO: So you think that’s more likely if Republicans grab power or what?

IGNAGNI: I think that the American people are telegraphing to both sides of the aisle that this is a priority for them. They’re worried about costs. They should be worried about costs. We need to get on with that job of addressing that.

Watch it:

Ignagni’s efforts to demur are telling. Even though the health insurance industry is in the process of massively shifting its campaign donations to Republicans and independent groups dedicated to defunding or repealing the law, I’ve suspected that insurers are more interested in favorable regulations that don’t cut into industry profits than outright repeal. Ignagni’s appearance only confirms this hypothesis.

While she may genuinely have some concerns about the penalties associated with the free rider provision that goes into effect in 2014 (employers with more than 50 workers wouldn’t be required to provide health insurance, but they would face fines if their work force received a government subsidy to buy health insurance), she’s probably more worried that if employers respond to the penalties by dropping coverage (and moving their workers into the exchanges), they’ll abandon their existing insurance products.

Other companies and plans operating inside the exchanges will pick up that business, but they will probably have to operate under better regulated market conditions. And, since companies would have to compete for business in the exchange (which in some states may include a public option) those products could bring in smaller profits. Ignagni is determined to shield the companies she represents form this kind of erosion and she’s happy to inflame concerns about rising health care costs to do so.

Health and Human Services Secretary Kathleen Sebelius has written a letter to AHIP President and CEO Karen Ignagni chastising the insurance lobby for blaming the recent insurance premium increases on the early benefits in the health care law — provisions that “were fully supported by AHIP and its member companies,” the letter points out.

Noting that “any potential premium impact from the new consumer protections and increased quality provisions under the Affordable Care Act will be minimal,” Sebelius also warns AHIP that the federal government will not sit idly by as insurers blame the health care law for the premium increases:

Moreover, I want AHIP’s members to be put on notice: the Administration, in partnership with states, will not tolerate unjustified rate hikes in the name of consumer protections.

Already my Department has provided 46 states with resources to strengthen the review and transparency of proposed premiums. Later this fall, we will issue a regulation that will require state or federal review of all potentially unreasonable rate increases filed by health insurers, with the justification for increases posted publicly for consumers and employers. We will also keep track of insurers with a record of unjustified rate increases: those plans may be excluded from health insurance Exchanges in 2014. Simply stated, we will not stad idly by as insurers blame their premium hikes and increased profits on the requirement that they provide consumers with basic protections.

Indeed, the rate review grants should help sates review unreasonable increases, but there is very little the federal government can actually do to reign in unreasonable rates; that burden falls to the states. And, given the influence of insurers on some state commissioners and the weak state regulatory structure — 23 states do not review and approve premium changes in the individual market and 5 of those 23 have no rate regulations at all — it’s clear that the federal government needs to find new ways to entice the states to strengthen their rate review processes.

Absent passing some kind of federal rate review legislation, HHS can attach thicker and longer strings to the next round of rate review grants. For instance, it can require that states adopt a strict prior review process that would give regulators the authority to deny “unreasonable” increases. That would encourage states to pass additional legislation (no easy task) but given the amount of interest in the first round of rate review dollars, those kind of conditions could at least spark legislative activity in the right direction. Obviously the feds could target the next round of rate review grants “to states that appear the most promising in terms of greater rate review, oversight, and enforcement,” Edwin Park, co-director of health policy at the Center on Budget and Policy Priorities told me in an email. “This would include not only states with an existing robust process but those states needing the most help but also the most willing to institute strong rate reviews.”

Park says that the federal government can also make it easier to conduct reviews by purchasing systems, establishing common procedures, and help states find actuaries to review insurance rates.

Finally, the federal government can work very closely with the states to ensure that insurers with unreasonable increases between now and 2014 are actually excluded from the exchanges and states can of course keep inefficient and costly issuers out of the exchanges.

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.

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.”

This morning, the Senate Health, Education, and Labor Committee (HELP) held its first post-health reform hearings on Sen. Dianne Feinstein’s (D-CA) proposal to allow the federal government to review and reject insurance premium increases in states that don’t already have this authority. President Obama included the idea in his health care plan, but it was kept out of the final bill for budgetary reasons, leaving federal regulators without the ability to protect consumers from unreasonable premium hikes.

Already, CEOs of Cigna and Aetna have hinted that they will increase premiums in the near future and during today’s hearing, AHIP President and CEO Karen Ignangi also suggested that high health care premiums are only a symptom of rising health care costs and said that lawmakers should not fault insurers and their relatively small profit margins for rising prices. She argued that Feinstein’s bill did not address the root cause of rising prices and repeatedly invited the Senators to consider the industry’s cost-containment proposals. Ignagni’s effort to shift the blame for rising premiums was unsuccessful, however. The industry’s profits and salaries have made headlines in recent days and several Democrats questioned Ignagni about the increases. Sen. Jack Reed (D-RI) and Michael McRaith, Director of the Illinois Department of Insurance, caught Ignagni in a contradiction:

REED: How do you respond to Mr. McRaith’s point that publicly traded companies essentially respond to Wall Street their strategy is denying claims and raising premiums above the cost of inflation. That doesn’t seem to be a cost saving strategy.

IGNAGNI: Sir, our members have, are organized to provide the highest quality care for the lowest price to consumers and to business purchasers…Our members are very clear about their fiduciary responsibilities, in terms of maintaining solvency and their responsibilities to consumers…

REED: So they have no responsibility to their share holders?

IGNAGNI: I said that they have fiduciary responsibility. They have responsibilities with respect to solvency…

REED: What’s their primary responsibility? Their fiduciary responsibility is to their share holders.

IGNAGNI: Their primary responsibility in a growing concern…to do the job you have been asked to do by people who purchase your product.[...]

REED: Frankly, we’re having a discussion about firms that go to the Street and say ‘our strategy is we’re going to deny claims and raise premiums above the medical inflation.’

IGNAGNI: Sir, I thought I said this and I apologize if I didn’t say it, but I dont’ know of any company that has gone to Wall Street that says it is in business to deny claims. [...]

McRAITH: There are companies operating around the country with loss ratios of 50% or less. All I would submit is that what Ms. Ignagni is saying is true…then rate review will only enhance and support that position.

Watch a compilation:

Indeed, Ignagni is arguing that compared to other health care stakeholders, insures maintain relatively small profit margins and raise premiums only to keep up with medical inflation and maintain company solvency. And while Ignagni is correct in her analysis, her frame of reference — placing insurance spending within the broader context of overall health care spending — is purposely misleading. Within the context of overall health care spending, insurers’ profits seem small. But within the context companies’ revenues, insurers skim off approximately 15-20 percent of premium dollars for administrative costs and profits and make a good penny, as the astronomical pay increase to WellPoint’s and UnitedHealth’s CEOs suggest.

That said, insurers are not the main drivers of health care spending. Policy makers do need to adopt more stringent systematic cost controls, but if insurers are as efficient as Ignagni says, why would they oppose federal rate review? There is a lot of waste and inefficiency in health care, and insurers are low hanging fruit and not a bad place to start.

Yesterday, America’s Health Insurance Plans (AHIP) — the health insurance lobby — held a press conference focusing on “the need for major change, and for keeping costs in check.” AHIP President and CEO Karen Ignagni warned that “the bill the House passed could thrust too much of the cost of health care onto the shoulders of younger people because it lets insurers charge older people – who typically incur much higher medical bills and whose incomes are generally higher – just twice as much as younger people.”

The lobby has long argued that if insurers can’t set premiums for older adults “as much as 5 times as high as those for younger adults for identical coverage,” then they would have to shift costs to younger applicants. Coverage would become “unaffordable,” “resulting in a smaller and less stable pool, and higher premiums for everyone.”

But a recent report from the Urban Institute disputes these claims. The report, which models premiums under 5:1, 2:1, and 1:1 age bands, concludes that “overall, there is almost no difference across the premium rating options in the share of the total population that would be left uninsured.” Similarly, the various age bands would be very little effect “on aggregate health spending of government, employers, and household.”

However, the report concluded that the insurers’ preferred rating of 5:1 would “significantly alter health care financing burdens for the youngest and oldest adults and families” who don’t qualify for government subsidies (for those who do qualify, the difference would be absorbed by the subsidy.) As the chart below demonstrates, “the affordability concerns are substantially more pronounced” for older single adults (55-64yo) under the 5:1 rating than for younger single adults (18-24yo) under the 2:1 rating”:

A 5:1 rating would significantly burden 55-64 year olds purchasing non-group coverage and actually increase subsidy costs. An earlier version of the Senate Finance Committee bill adopted the industry’s 5:1 recommendation, but changed the rating during mark-up. The insurers, however, insist on the 5:1, noting that the government could provide seniors with an “external” subsidy outside of the exchange to help them afford coverage.

Generally, the industry is concerned that a tighter age band would jeopardize the industry’s ability to attract a significant number of young people into high deductible policies outside of the exchange (in the remaining individual market). A 4:1 or 2:1 community rating would force insurers to charge younger people higher premiums and would presumably attract fewer enrollees; a 5:1 community rating would allow insurers to charge older people more and market more “affordable” (read: high deductible) policies to young and healthy applicants who pay more in premiums than they file in claims.

As former health insurance executive Wendell Potter explained in an interview with ThinkProress, insurers would “like to move us all into high deductible plans.” “[The would like to] have high deductibles that we would all have to meet and or [move us] into these limited benefit plans that are very skimpy and don’t cover you, don’t cover what you need. That way, when you do get sick, they’re not on the hook to pay you anything. They would love to have you enrolled in these.”

Top health insurance lobbyist Karen Ignagni — the President and CEO of America’s Health Insurance Plans — has a solution for everything. Yesterday, just days after releasing a poorly received report on premium increases, Ignagni testified before the Senate HELP committee and insisted that insurance market reform is only possible if everyone buys into the system.

“If members of Congress are concerned about” imposing high penalties on individuals who don’t purchase coverage, “we’ve offered some alternatives to achieve universal participation,” Ignagni helpfully suggested:

- Higher rates in subsequent years: “If you don’t participate in year one, you pay more in subsequent years.”

- Loss of personal exemption: “If you didn’t participate you lose your personal exemption on the state level.”

- Auto enrollment: “We’ve been looking at auto enrollment for people who are eligible for subsidies.”

Watch it:

“There are ways to solve those problems, and we’re committed to working with you to solve the problems,” Ignagni said, in classic conciliatory form. “We don’t want to let Americans down. It’s very important. We promised that we are committed to this. Our industry is for-square behind it, but we have an obligation to explain how to make that happen.”

If penalties aren’t higher, premiums will go up and Ignagni’s solutions for getting more Americans into the system could play well on the hill. But she hasn’t solved the problem of affordability. The Senate Finance Committee lowered the mandate standards because it did not have enough money for a robust subsidy program or the political will to establish a public option (or other proposals that would have significantly lowered premiums). Now, the industry is asking Congress to design policies that strongly encourage Americans to purchase coverage without offering to lower premiums.