The Center for Public Integrity

In 2007, a few months before I left the health insurance industry, I was tasked to write a “white paper” designed to help convince media folks and politicians that the problem of the uninsured wasn’t much of a problem after all. If demographic data was sliced just so, I was expected to write, it was easy to conclude that many of the uninsured — some 46 million at the time — were that way by choice.

I was told to point out, for example, that a significant percentage of people without coverage were in families with annual incomes of $75,000 or more. The implication: That those folks were simply shirking their responsibilities. A crucial fact that I was not to disclose, of course, was that many Americans, including wealthy ones, couldn’t buy coverage at any price because of pre-existing conditions. These are the “untouchables” as far as insurance companies were concerned. (That’s my term, not the industry’s. The underwriters prefer the term “uninsurable.”)

I also was expected to stress that most young adults — who comprise the largest segment of the uninsured — had chosen to “go naked” because they felt invincible. They simply didn’t want to pay good money for insurance because that cash could better be spent keeping the fridge stocked with Bud Light. To perpetuate that myth, we even came up with a catchy name for those twenty-somethings — the “young invincibles.”

Our message to America: Don’t feel sorry for those irresponsible bums, and by all means don’t let Congress pass any new laws that would require insurers to cover them.

Having to write that paper was one of the reasons I resigned. As the father of a couple young adults, I knew that their crowd did not consider themselves invincible. They simply did not have money left over after paying student loans and the rent to buy health insurance.

If you think the idea of privatizing Medicare has gone away, that the health insurance industry has thrown in the towel on one of its biggest goals, there was fresh evidence last week that you would be wrong.

As I wrote more than a year ago — when Rep. Paul Ryan (R.-Wis.) unveiled his plan to replace the Medicare system with one that would essentially be run by private insurers — Democrats would be foolish to think that Ryan couldn’t get the public to support the concept.  I noted then that insurers would be investing heavily in efforts to convince people that Ryan’s plan represented the only way to save the Medicare program from insolvency.

One of the tried-and-true tactics insurers have used many times to influence public opinion is the enlistment of “third-party advocates” to disseminate industry talking points. Last week an industry friend in high places — Thomas Scully, who headed the Medicare program during much of the George W. Bush administration — weighed in on the matter. It is only a matter of time, Scully told Kaiser Health News, before politicians on both sides of the aisle endorse Ryan’s proposal of providing Medicare beneficiaries with a set amount of money every year to buy coverage from private insurers.

Scully, now senior counsel at Alston & Bird, the big law and lobbying firm that has represented some of the country’s biggest health insurers, including WellPoint and Cigna, is advocating a gradual phase-in of the Ryan plan, similar to how the recent changes in Social Security came about. 

When members of Congress who led the effort to overhaul the U.S. health care system saw the public option slipping away, some of them suggested that a viable alternative would be the fostering of nonprofit health insurance CO-OPs (Consumer Oriented and Operated Plans) throughout the country.

I was among the many who belittled the idea. Having spent two decades in the health insurance industry, I knew how difficult it is for even the biggest insurers to establish a presence in markets where one or two other insurance firms dominate. And there are hardly any markets left where that is not the case.

The barriers to entry in any given market are so high that the only way insurers have been able to establish much of a foothold where the don’t already have a presence is to acquire one or more existing companies. Aetna became a big player in Philadelphia, for example, only after it bought U.S. Healthcare several years ago.

If you don’t have a sizable membership base, it is difficult to negotiate rates with doctors and hospitals that are as favorable as those that bigger insurers can get. If you have to pay providers more than your competitors, you will have to charge your customers higher premiums. It is almost impossible to grow your membership if you have to price your premiums higher than your competitors. It’s a chicken-and-egg thing and why we have seen such rapid consolidation in the insurance industry. And it’s why I was skeptical that start-up non-profit CO-OPs would have a snowball’s chance.

I’m happy to report that I might have been wrong. In fact, CO-OPs could be one of the sleepers in the health care reform law that truly transforms how care is financed and delivered in this country. And they could even hasten the day when the big investor-owned corporations cede the marketplace to nonprofits and move on to other ways of earning a profit.

I learned that Mitt Romney had won the Nebraska Republican presidential primary last week via a “Breaking News” e-mail alert from POLITICO.  It wasn’t the news from the Cornhusker state, however, that caught my eye. It was instead the health insurance industry’s decision to spend our premium dollars on an Internet ad — an ad warning of dire consequences if the Supreme Court doesn’t rule the way insurers want on the constitutionality of Obamacare.

The worst-case scenario for insurers is if the high court strikes down the provision of the law requiring us to buy coverage (the so-called individual mandate), but allows the law’s important consumer protections to go forward.

The reason Obamacare is built around the individual mandate is because of the relentless lobbying by insurers, and not just on Capitol Hill.  Representatives of the industry made frequent trips to the White House during the debate on reform to twist the arm of President Obama, who had campaigned against the mandate when he was running for president.  

The insurance reps were persuasive in arguing that the parts of the bill consumer advocates were demanding wouldn’t work unless an “enforceable personal purchase requirement” (a.k.a., the individual mandate) was also included, along with subsidies from the government to help low-income families pay their premiums. And not incidentally, insurers love the mandate because it forces millions more people to buy health insurance policies. The insurance folks made it clear that without the mandate and subsidies, the industry would spend whatever was necessary to defeat reform. So a deal was cut. The industry promised it would not try to destroy reform if it got the mandate, and it would even go along with some of what consumer advocates wanted.

We’ll be hearing a lot from politicians this summer and fall about the urgency of dealing with Medicare spending, which will begin to rise sharply in the coming years as increasing numbers of the country’s 75 million baby boomers turn 65.

If we’re fortunate, some courageous candidates will call for renewed debate on a provision of the health care reform bill that had once enjoyed bipartisan support. The one that spineless Democrats decided had to be yanked when a certain former vice presidential nominee claimed, falsely, that it would create government-run “death panels.”

Medicare expenditures now total more than half a trillion dollars annually, representing 15 percent of federal spending.  The only programs to which the government devotes more dollars are Social Security and national defense, both of which consume 20 percent of yearly federal outlays.

The Congressional Budget Office projects that the average annual growth in Medicare spending will be 5.8 percent between 2012 and 2020. It would have been one percentage point higher than that, according to the CBO, if not for the cost-constraining provisions of the Affordable Care Act,  most notably the one that will gradually eliminate the bonuses the government pays private insurers to participate in the Medicare Advantage program.

The Affordable Care Act might have been able to curtail spending further if it hadn’t been for Sarah Palin’s reckless rhetoric. It was Palin who charged that a provision of the law allowing Medicare to pay doctors for having end-of-life discussions with their patients would lead to government-run “death panels.”

You’ve heard it before. Let’s deep six ObamaCare and replace it with a trio of sure-fire free-market solutions to the problems that plague our health care system. All that’s really needed, we’re told, is to pass tort reform, allow insurance companies to sell policies across state lines and encourage people to set up health savings accounts.

Here’s the problem: there is mounting evidence that all three of these strategies not only are ineffective but may actually be making matters worse.

Let’s start with those health saving accounts (HSAs), which folks can establish if they enroll in a high-deductible health plan. With backing from the Bush administration and the insurance industry, Congress passed legislation in 2003 to encourage people to enroll in high-deductible plans by giving tax-exempt status to the money policyholders contribute to their HSAs to cover out-of-pocket expenses. 

Proponents argued that Americans would be more prudent “consumers” and take better care of themselves if they had to spend more of their own hard-earned money for health care and their insurers had to spend less. HSAs, they said, would bring down the cost of care because people with more “skin in the game” would shop around for doctors and hospitals that charged less.

It sounded good. But one of the reasons I left the insurance industry was because of irrefutable evidence that high-deductible plans were great for insurance firms but not so great for many of the people enrolled in them.

The recent news from the nonpartisan Kaiser Family Foundation that health insurers will have to send rebate checks totaling more than $1.3 billion to Americans this summer was especially gratifying to me. It more than justified my decision three years ago to clue members of Congress in on how insurance companies have systematically been devoting ever-increasing portions of our premium dollars to rewarding their shareholders and top executives.

Following my initial testimony in June 2009, Senator Jay Rockefeller (D-W.Va.) and other lawmakers drafted language for the health care reform bill requiring insurance firms to spend at least 80 percent of what we pay in premiums on actual medical care. Despite an intense lobbying effort by insurers, the language emerged unscathed in the final bill. That defeat for the insurance industry is turning out to be a big win for consumers.

One of the reasons I decided to testify in the first place was to explain why Americans are getting far less value for the premiums they pay than they were a few years earlier. As I told members of the Senate Commerce Committee, which Rockefeller chairs, for-profit insurers are under intense pressure from both shareholders and Wall Street financial analysts to show that the portion of their policyholders’ premiums they used to pay claims during the preceding quarter was less than the amount they paid during the same period a year earlier.

One of my responsibilities when I was head of corporate communications at Cigna was to help ensure that the company’s annual meeting of shareholders ran smoothly and, if at all possible, attracted no negative publicity.

I always dreaded the annual meeting because you really never knew if one or more disgruntled shareholders might show up and ask rude questions of the CEO. But during all of my years of helping plan those meetings, we had an unblemished string of non-events. We considered the meetings marathons if they lasted more than 15 minutes. Most of them were over long before then. Over the course of 10 years, I only recall two reporters who felt compelled to attend, and one of them got stuck in traffic and missed the whole thing.

Some of my peers at other health insurers were not that lucky, but relatively few of the big-profit insurers have had to cope with contentious shareholder meetings.

It is clear those days are over.

Some investors are now beginning to question how those companies make the billions of dollars in profits they report every year, especially with the ranks of the uninsured continuing to swell, how they spend policyholders’ money to influence public policy and whether their CEOs are truly worth all they are being paid.

Of the five biggest for-profit insurers, Cigna will lead off the annual meeting season this coming Wednesday in Hartford and it will not likely be the sleeper previous meetings have been.

That’s because earlier this month, one big shareholder — the Change to Win (CtW) Investment Group — sent a letter to other shareholders urging them to “send our board a clear message: Cigna’s executive pay structure is broken and open engagement needs to begin with concerned shareholders, immediately.”

Want to find out what Congress is about to vote on? Take a ride on the Washington subway.

If you’ve been on the Metro in recent days, you might have seen an ad designed to make you feel sorry for our poor health insurance companies. So sorry that you’ll call your congressman and demand he support a bill that would gut an important part of the health care reform law: the provision requiring that insurers spend at least 80 percent of the premiums they collect from us on our actual health care.

Back in the early 1990s, when most insurance firms were still nonprofits, they were spending on average 95 cents of every premium dollar paying medical claims. As they began to convert to for-profit status, though, that percentage dropped because of pressure from Wall Street. Now that the industry is dominated by a handful of investor-owned corporations, the average is around 80 percent. The members of Congress who drafted the Affordable Care Act felt that was as low as it should go. And so they inserted language in the bill requiring insurers to pay rebates to their policyholders if they go below that threshold.

Shareholders hate that provision because the less insurance companies spend on health care, the more is available for profits. And because job number one for any investor-owned company is to “enhance shareholder value,” industry lobbyists have been at work ever since the bill’s passage to get the provision repealed or weakened.  One way of doing that is by getting Congress to exempt the commissions insurance firms pay agents who sell their policies from the equation used to determine that threshold. The House Energy and Commerce Committee is set to do that as early as today.

If there is a group of people more anxious about how the Supreme Court will rule on the health care reform law than President Obama and the millions of Americans who are already benefiting from it, it is health insurance executives.

Not only have their companies been spending millions of dollars implementing the parts of the law that pertains to them — and most of them do — but they also have been counting on the law as very possibly the only thing that can preserve the free market system of health insurance in this country. This is why it is so ironic that defenders of the free market are the most vocal critics of the law and the ones hoping most ardently that the Court will declare it unconstitutional.

Health insurers have known for years that their business practices of excluding growing numbers of Americans from coverage and shifting more and more of the cost of care to policyholders are not sustainable over the long haul. That’s why their top priority during the health care reform debate was to make sure whatever bill Congress passed included the much-vilified individual mandate. And it’s also why the big insurance companies have been working almost frantically to reinvent themselves lately.

Cigna and Aetna recently became the latest of the biggest national firms to rebrand themselves and roll out new logos and self-descriptions. Cigna is now “a global health service company“ while Aetna is now “one of the nation's leading health care benefits companies.” What this means is that these companies and their competitors have come to understand that the very policies that enabled them to make Wall Street-pleasing profits over several years has led to a health insurance marketplace that is shrinking. And as it continues to shrink, so will their profit margins.