Health Insurance Reform Mythbuster: Insurance Industry Study on Premiums

Health insurance reform opponents continue to spread myths about components of America's Affordable Health Choices Act. Over the weekend, America's Health Insurance Plans (AHIP), the lobby for the health insurance industry, released a report that claims that the Senate Finance Committee bill would mean higher health care premiums for America's families than current law. Independent analysts quickly labeled the report both incomplete and deeply flawed. Even the firm that did the report, PricewaterhouseCoopers, immediately backed away–admitting it did not look at key provisions. As health economist Len Nichols pointed out:

It was paid for by people who are not interested in an objective analysis of the truth but are interested in a particular point of view being inserted into the political process right now.

Myth: A report by the independent accounting firm PricewaterhouseCoopers demonstrates that the Senate Finance health insurance reform bill will result in higher premiums for America's families than under current law.

Fact: As PricewaterhouseCoopers itself said in a hastily released statement last night, the report it prepared for AHIP is incomplete — analyzing only the four provisions of the Senate Finance bill that AHIP asked them to analyze — ignoring all the other provisions of the bill, including its cost containment provisions:

The analysis concluded the four provisions would raise premiums for private health insurance coverage. As the report itself acknowledges, other provisions that are part of health reform proposals were not included in the PwC analysis.

Fact: The analysis is deeply flawed — as pointed out by numerous top health care experts, including:

John Rother, AARP Executive Vice President, called the report “fundamentally dishonest” and further said:

I really don’t think it’s worth the paper it’s written on,” AARP Executive Vice President John Rother told reporters Monday. “If anyone believes it, that’s a problem.”

Len Nichols, a highly-respected health care economist at New America Foundation, points out: “Aside from the obvious conflict of interest associated with a report funded by the very industry it analyzes, PricewaterhouseCoopers basic analytic assumptions are at variance with the bill and the opinions of most analysts.” Nichols on just a few of the flaws in the insurance industry report:

The AHIP study ignores the subsidies included in the Senate Finance bill to make health insurance more affordable. Under the bill, 85 percent of people getting coverage from the new insurance marketplace are going to receive financial assistance to pay for it. The AHIP report ignores this. How can you claim to analyze premiums without taking into account subsidies to help people afford the coverage?

The AHIP study achieves its conclusion of increased premiums by assuming that all Medicare savings would translate into reduced payments to providers, which will be shifted into higher prices for private payers. Actually, the largest Medicare savings in the bill are realized by reducing the overpayments to Medicare Advantage plans, which mostly go into private insurers' pockets — not providers. Other savings are about creating incentives for higher-quality, more efficient care — not simply about paying providers less. In reality, many high-quality providers will make more under the proposed reforms.

The AHIP study also achieves its conclusion of increased premiums by assuming that employers will pay the 40 percent excise tax on high-cost plans. However, most independent analysts have concluded that employers would react to the tax by switching to lower-cost plans and avoiding the levy. If that happens, there would be no additional costs to pass onto consumers.

Seven respected health care experts, including Henry Aaron of Brookings Institution, David Cutler at Harvard University, and Elliott Fisher of Dartmouth Medical School, reacted to the AHIP report writing, “we believe the study is flawed and that the results are not credible”:

The AHIP study ignores the many provisions in the Senate Finance Committee's reform plan that would help streamline medical care delivery and reduce its cost, including changes in payment methods, provisions to encourage the use of information technology and comparative effectiveness, and the establishment of insurance exchanges to lower the administrative costs associated with health insurance.

[The AHIP] study ignores critical elements of the insurance market reforms in the Senate Finance Committee bill that would protect people from many of the problems AHIP purports to analyze; it would grandfather existing coverage, provide reinsurance and risk-adjustment, and introduce special policies for young adults.