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in 2009 there is no bigger issue

At the Table, but on the Menu

The health-care industry learns the price of appeasing Congress.

Opinion WSJ, Oct 13, 2009

The Senate Finance Committee holds its big health-care vote today, but the bigger story is that the health-care industry may finally be coming to its senses. After months of serving as Rose Garden props, insurers, doctors and hospitals are discovering they've been taken for a ride on ObamaCare. Too bad it may be too late to stop the train.

The best scales-from-the-eyes moment comes courtesy of America's Health Insurance Plans, the industry lobby.  Yesterday AHIP released an important PricewaterhouseCoopers study showing that the Finance bill would on average add some $1,700 a year to the cost of family coverage in 2013.  A decade from now, family premiums would cost $4,000 more than if Congress did nothing, and singles would pay about $1,500 more.  Hardest hit would be the individual market, with rates rising by 49%, but even the largest employers would see increases between 9% and 11%.

The study's findings won't shock anyone who's read the bill's details, but its provenance might: In a deal cut earlier this year, the insurance industry acquiesced to rules requiring them to take all comers, regardless of health status or history, and also charge them more or less the same premiums. In return, Congress would subsidize individuals to buy their products and provide new customers by requiring everyone to buy insurance or pay a tax penalty.

A spokesman for Finance Chairman Max Baucus dismissed the AHIP report as a "hatchet job . . . bought and paid for by the same health insurance companies that have been gouging too many consumers for too long as they stand in the way of reform yet again."  Talk about ungrateful. If insurers really had been standing in the way, — or even willing to educate the public about an agenda that will raise consumer prices—ObamaCare might not now be rushing to passage.

The irony is that AHIP is now arguing for a more left-wing bill, claiming the Baucus plan isn't "universal" enough.  The Congressional Budget Office thinks it will cover only 91% of the population, in part because Democrats reduced the "individual mandate" tax on people who don't buy insurance.

Now they'll pay only $750 after eight years of noncompliance, from an original maximum of $3,800 in the first year, because taxing people looked bad politically.  But without this brute tax force, healthier people will opt out of expensive insurance pools and only buy coverage when they need it.  It doesn't take a consulting firm to prove that this is an adverse-selection disaster waiting to happen.

The AHIP study also illuminates the other taxes and regulations that will increase insurance costs and weren't part of the bargain. The 40% excise tax on "Cadillac" health plans—above $8,000 for individuals and $21,000 for families—is structured so that it will ultimately hit the Chevy plans too, much like the alternative minimum tax. Reductions in Medicare payments mean that doctors and hospitals will be forced to raise prices in the private market, which will cause a 1.2% increase in the underlying health costs that drive premiums.

Speaking of providers, the hospitals agreed to $155 billion in Medicare and Medicaid cutbacks, on the theory that they, like the insurers, would also make the revenue up on volume.  But since the coverage mandate has become Swiss cheese, both the Federation of American Hospitals and the American Hospital Association are also growing more combative behind the scenes.

The American Medical Association may also be having second thoughts.  The doctors lobby had endorsed the House health bill because it eliminated the "sustainable growth rate," or SGR, a formula that automatically reduces Medicare payments to doctors when costs run too high.  The SGR has been overturned every year since 2003, however, because Medicare price controls are already stringent.  Yet eliminating the SGR will cost some $245 billion, and Mr. Baucus wanted to preserve the fiction that his new entitlement will reduce the deficit.  So to game the 10-year budget math, he patches the problem only for a single year.

The AMA didn't even play hard to get, but apparently it didn't realize that Democrats want to keep this formula in place.  Pretending that doctors will eat a 25%-plus pay cut makes Medicare's fiscal condition seem less dire, and the annual fire drill on the "doctors fix" ensures that campaign contributions keep coming.  And here we thought you had to be smart to get into med school.

All of these lobbies should have known better. The insurers have been especially foolish, given that ObamaCare has all along been about converting them into public utilities.  Washington will design benefits and set prices—and now there's even talk in the House of a windfall profits tax.  The CEOs of Aetna, WellPoint, United Healthcare and the rest deserve to be sued for destroying shareholder value through political malpractice.  If nothing else, this exercise provides an object lesson in the wisdom of the Washington adage that "if you're not at the table, you're on the menu." The industry is "at the table"—as the main course.

The tragedy is that the biggest losers will be average Americans, who thanks to this political collusion are likely to end up with insurance that is more expensive and less flexible than even the status quo.