A Furious And Rapid Response To The Insurance Industry's Face Flip

It seems weird that the insurance industry, which had played so nicely with the White House for months -- their lobbying against the public option in August aside -- would suddenly embrace a facially flawed conclusion about the effects of health care reform. Electoral politics is probably the last thing the American Health Insurance Plan (AHIP) trade group wants to be accused of now -- and shifting gears on an increasingly popular health care reform bill at the last minute -- playing directly into the hands of Democrats who just knew that the insurance industry only a fair-weather friend -- stiffing Max Baucus's Herculean efforts to craft an acceptable bill without a public option (for the industry!) -- is a curious stratagem.

Even if you're not an expert on health insurance reform, it's not hard to see why Democrats are accusing AHIP of dropping its pretense to intellectual honesty. Put simply, the report, produced Price Waterhouse Cooper, does not account for the subsidies that the government would pay to help people purchase insurance and a variety of risk adjustments and grandfathering that will almost certainly pass Congress in any bill.

Without those subsidies, mostly in the forms of tax credits, insurance premiums would rise for most everyone. With them, they're going to rise for some folks -- this is where Republicans get their "tax increase on the Middle Class" trope -- but no one assumes that the final bill won't provide any subsidies whatsoever. In fact, that assumption is fairly ridiculous on its face.   The second assumption is ideologically defensible, to a point. The report assumes that, faced with higher fees on certain services and products and new tax on expensive individual plans, the insurance industry will raise prices to compensate themselves for lost revenue.

Democrats, the White House and most health economists believe that the insurance industry has larger incentives to reduce the costs of these plans (by reducing benefits) -- rather than increasing their price. (As Ezra Klein puts it, " If Blockbuster decides to cut costs to consumers by negotiating lower payments to movie studios, does Netflix send out a sorrowful e-mail explaining that it will have to increase its membership fee because it now needs to make higher payments to movie studios?") The report seems to be on more solid ground in its criticism of the relatively weak mandate; unless it's stronger, it won't provide enough of an incentive for people without insurance to join On a conference call, AHIP's president Karen Ignani complained that "[n]ot one piece of the legislation bends the cost curve. And if that is what will get everyone into the system and make it sustainable into the future, then that is a goal that should not be taken off of the table."   In a sense, AHIP is claiming that the bill will leave them without bargaining power.  "They should have come to us with very solid suggestions with how we could get those coverage numbers up. A report like this does nothing to help them address these real fundamental concern," a Finance Committee aide said.

Hoping to pop this trial balloon before it expands,  the White House and allies have counterpunched with an alacrity unfamiliar to Democrats. They're first attacking the industry's motives, which isn't surprising. The Senate Finance Committee's health staff, on the White House's urging, held an unprecedented background call with more than 50 reporters this afternoon to rebut the report's substance.