Insurance News

AHIP Statement on Status of Health Care Reform

Posted on: February 24, 2010

Washington, D.C. ? America?s Health Insurance Plans (AHIP) President and CEO Karen Ignagni this afternoon made the following remarks as prepared for delivery on the status of health care reform:

?There is an enormous amount of attention being paid right now to premium increases for people who obtain coverage in the individual insurance market ? which represents about seven percent of those with private coverage today. This concern is understandable, especially at a time when people across the country are struggling to make ends meet and having to make tough choices in their personal budgets.

?The central policy question that should be asked is: what is driving these increases and whether the measures being proposed will work? Families are counting on policymakers to step up and address the problem so that costs are brought under control and all Americans have health security. Our members want that too.

?But there is a heavy dose of politics at work here. There has been a strenuous effort to focus on health plans because very few policymakers want to take on the real issue of why costs are rising. But they must take on these issues to assure American families and small businesses that health care reform will be affordable and sustainable.

?In addition, a weak economy is causing younger, healthier individuals to drop their insurance. As healthy people forego health insurance, the rates for those Americans who need coverage increases. That is why going into 2009 we advocated for robust insurance market reforms, including guaranteed coverage with no pre-existing condition exclusions or health status rating paired with an effective personal coverage requirement to get everyone covered.

?To suggest that cost containment can be achieved by singling out health plans ignores the very inconvenient truth that premium increases reflect increases in the underlying cost of medical services.

?Regulating premiums won?t do anything to reduce the soaring costs of medical care. This would be like capping the prices auto makers can charge consumers, but letting the steel, rubber, and technology manufacturers charge the auto makers whatever they want.

?There is also a lot of attention on health plans? profits. The track record shows that this is an efficient, low-margin industry whose margins are consistently lower than other sectors in health care. According to Yahoo! Finance?s latest analysis of quarterly financial data, the net profit margin for the entire health care sector is 11%, while health plans? net profit margin is 3.4%.

?In fact, out of every dollar the nation spends on health care, less than one penny goes to health plan profits. It is time to ask: what are we doing about the other 99 cents?

?We need to ask this question because new health spending projections released by CMS recently found that health care?s share of the economy grew 1.1 percentage points in 2009 ? the largest one-year increase in health care?s share of the GDP since the federal government began keeping track in 1960. The report notes that the ?two primary drivers of growth?are medical prices and utilization.?

?The Council of Economic Advisors last year modeled out the impact of reducing the rate of growth in health care costs by 1.5% per year for a decade. That is the kind of goal around which the nation should rally. But we won?t even achieve a small fraction of that goal by exclusively looking at health plan administrative costs and profits.

?Examples of unsustainable cost increases abound:

A preliminary report by the Massachusetts Attorney General finds that some Massachusetts hospitals and doctors are paid twice as much as others for essentially the same patient care. The report points to the market clout of the best-paid providers as a main driver of the state?s spiraling health care costs.

Forbes magazine just released the list of its most expensive drugs, including one drug that cost $409,500 for a year?s supply ? meaning it costs more than $1,000 per day, every day, all year. And three more that each cost more than $350,000 for one year. The article notes that ?biotech companies can charge pretty much whatever they want.?

The New York Times reported last summer on the mystery of out-of-network charges. Our survey of out-of-network fees found that a patient in Colorado was charged $26,000 for gall bladder surgery when Medicare?s fee was only $681. A patient in California was charged $15,870 for cataract surgery when Medicare only pays $638.

According to the International Federation of Health Plans, on a unit-cost basis the American people pay 50 to 60 percent more than every other industrialized nation for medicines, technology, and professional services. In other words, we are paying more ? far more ? for every doctor visit, every procedure, and every diagnostic test than our global competitors.

?The nation needs a systematic, comprehensive process to ensure that health care costs are brought under control and that coverage becomes and remains affordable for all Americans. That means looking closely and continually at all of the areas that make our health care system unaffordable:

?Sky-high unit-costs for medical services;

?Lack of transparency ? which leaves patients and their physicians in the dark about which treatments are safest, best and most cost effective;

?Payment systems that reward volume rather than value;

?System-wide administrative costs;

?Inadequate support for prevention, wellness and chronic care management; and

?Out-of-control medical liability system.

?The refusal to fundamentally address underlying medical costs leaves policymakers with two financing options: cutting Medicare and raising taxes. The American people are understandably very concerned about that approach. They want?and our country needs?health care reform that reduces the rate of growth of health care costs.?

Robert Zirkelbach
(202) 778-8493

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