Insurance Industry Proposal Fails To Control Costs

Earlier this week, America’s Health Insurance Plans (AHIP) and the BlueCross BlueShield Association issued statements agreeing to offer every applicant health insurance if all Americans purchased coverage. Insurance profits aside, a universal mandate makes sense. If the young and healthy avoid preventive care and only enter the health care system at the onset of sickness, they will require more expensive treatments or develop costly chronic diseases. To contain costs, better manage chronic diseases and improve preventive care, everyone has to be part of the system.

But while the insurance industry has shrewdly co-opted the rhetoric of universal coverage, they have not adopted the necessary affordability measures that progressives typically advocate for. For instance, while most progressives support community rating — everyone pays the same prices for coverage, regardless of health status — and a new health care exchange in which private plans are forced to compete with a public option, the insurance industry would be happy to see the government subsidize coverage for those who can’t afford it.

Since insurance companies will likely conflate universal coverage with affordable coverage and resist cost-containment measures that could undermine industry profits, progressives need to clarify their goals for reform and delineate the differences:

Community Rating:


Progressive argument: Replacing underwriting with a “community rating” system would set premiums based on age and location instead of the health status of the individual. This would bring down the cost of insurance for higher risk populations and guard against radical changes in premiums from year to year.

Industry argument: Looking at the experience that states have had who have done guarantee issue, who have done community rating…they’ve had some prices increase, individuals have actually had a reduction in coverage in their market.

Industry debunk: The problem with community rating is that if all health plans in an area don’t stick with it, it falls apart. If insurance companies to underwrite healthy applicants, the plans that are still community rating will be left with sicker populations and higher premiums. Community rating only works if underwriting is restricted and universal coverage is extended.

Competing Public Plan:

Progressive argument: A competing public plan would use the administrative efficiencies of government-run health insurance plans, as well as the purchasing power of government to control costs. Insurers do not have (or are unwilling to use) the market power to counter the pricing power of many hospital systems or physician specialties.

Industry argument: Where there’s a public option where they got to set the rules when competing with private companies, that would not achieve the type of goals on improving coverage and improving access, and making healthcare coverage more affordable.

Industry debunk: Allowing private insurers to compete with a new public plan will lower costs and force companies to compete on quality and value instead of risk.