As Health Insurance Industry Totters,Should It Direct Policy?

Reed Abelson's NY Times article (excerpts below) suggests that the private for-profit health insurance industry is increasingly vulnerable, financially and politically. It could lose 10 million enrollees this year, out of about 160 million currently, due to the economic downturn.

It confirms that for-profit health insurance companies provide little value and have relied on the tolerance of government to stay in business.

Aetna's $3 billion a year in profits outstrips the first year savings in the Obama budget directed towards health care reform: $2 billion.

The industry insists that proposals for reform require every individual to pay in, in return for expanding coverage: a direct subsidy to them (what is it that they do again...).

They oppose an expanded role for social insurance plans like Medicare. Medicare already requires that everyone pay in, and covers everyone who does. EQUAL Health and others propose lowering the eligibility age for Medicare to 50 immediately
(http://www.centerforpolicyanalysis.org/id24.html).

To refresh their mission, they aim to manage patient care. (Didn't we try that already?) Don McCanne's summary of recent studies suggests that the insurance industry's efforts to create "medical homes" generally come down to adding a few phone calls from a nurse practitioner, and don't save money or improve outcomes. In contrast, a competing possibility would be "doctors forming more alliances to oversee care or hospitals joining forces with physicians" - a group that really could provide coordinated, continuous, patient-responsive primary care, well-documented to save money and improve outcomes. [But still would need a government-directed program to assure access & affordability.]

- Ellen Shaffer

March 1, 2009 NYT (Business section p.1)
Health Insurers, Poised for Round 2
By REED ABELSON

.....Almost every business in the country is feeling buffeted by the recession. But for health insurance companies, the bleak economy is only part of the problem: the changing of the guard in Washington is an equal if not more dangerous threat. Together, these forces could deal a body blow to a business model that was already teetering.

Health plans are losing millions of members who say they can no longer afford their products. Some big employers are becoming increasingly frustrated — and vocal — about how much they spend on health benefits. Smaller ones are being crushed by ever-rising health care costs. On top of that, the Republicans who pushed to expand the role of private players in the health care system have largely been replaced by Democrats who want to overhaul it.

.....The insurers are “as vulnerable politically as they have been in the last 10 to 15 years,” said Sheryl R. Skolnick, an analyst at CRT Capital Holdings in Stamford, Conn.

.....But the industry is also taking a very public role in voicing concern about some of the proposals being floated. In supporting legislation that would prevent the companies from refusing to cover people with existing medical conditions, the insurers have said the government must require everyone to buy insurance, subsidizing the cost for those who cannot afford it.

FOR private insurers, the more troubling specter in health care reform is an expansion of the Medicare program to those under 65. The program has lower expenses and generally pays much less for medical care than private insurers, so it would probably translate into a lower-cost plan for consumers. To help lead opposition to the idea, which they say puts them at an unfair disadvantage, insurers have joined with hospitals to argue that Medicare pays too little so that any expansion would significantly hurt providers.

But by acknowledging a need for a greater government role, the industry hopes it can persuade the president and Congress that it makes the most sense to work together. “Whatever we do has to be a public-private partnership,” said Mr. Williams, the Aetna C.E.O.

.....Politics aside, the weak economy has highlighted just how vulnerable insurers are to pricing themselves out of the market. The percentage of people who are commercially insured fell to about 68 percent last year from about 78 percent two decades ago, according to Matthew R. Borsch, an analyst at Goldman Sachs. The numbers do not include the elderly.

“The reason really comes down to affordability,” said Mr. Borsch, who predicts that the number of people who lose or drop their commercial coverage during the economic downturn could approach 10 million. “It looks like the pace of erosion is really accelerating.”

Both Aetna and UnitedHealth had double-digit declines in earnings last year, but both remain solidly profitable. Aetna earned $1.4 billion, down 24 percent, on sales of $31.6 billion, while UnitedHealth had net earnings of nearly $3 billion, down 36 percent, on revenue of $81.2 billion.

Insurers’ corporate customers have been increasingly critical of the value of their health coverage. I.B.M., for example, says the industry is not helping to provide care that is more cost-effective in helping their workers live longer and more productive lives. The insurers “don’t have a clue about providing what we really want to buy,” said Dr. Paul Grundy, the executive at I.B.M. who oversees its health care efforts.

The company’s current emphasis is on increasing its presence in Medicaid, where it expects to add roughly 400,000 new members this year.

In contrast, Aetna is betting more heavily that employers will continue to play a crucial role, providing coverage for a majority of Americans. Unlike much of the rest of the industry, the company is increasing the number of people enrolled in its commercial health plans, expecting this year to add roughly 1.3 million members, largely through its employer business.

Aetna says it believes it will be able to convince skeptical employers and government officials that it can, in fact, oversee a patient’s medical care to both save money and improve quality. No longer a company of just underwriters or claims handlers, Aetna has about 20 percent of its work force dedicated to information technology, including systems to flag doctors about potential problems in a patient’s care. Another 20 percent are clinicians, including nurses who help coach patients through a difficult illness.

Other possibilities include doctors forming more alliances to oversee care or hospitals joining forces with physicians — all to start competing with insurers.