The Daily Record

Insurance Firms Still Don't Get It

Daily Record — Sunday, January 10, 2010


In his column last month, Thomas Rubino, director of public affairs for Horizon Blue Cross Blue Shield, argues insurance companies are not to blame for rising health care costs and dismisses the viability of a public health insurance plan as a way to rein in costs and improve competition in the insurance market.

As the debate around national health care reform intensifies, Rubino's claims require careful examination. Rubino says insurance company profits, executive salaries and administrative costs are not the real culprit driving up health care premiums for New Jersey's working families, which have increased 79.1 percent over the past 10 years. He notes that compared to other industries, health insurance companies are not among the most profitable.

The truth is, while insurance companies may not experience the highest profit margins, there is plenty of room to cut costs, particularly in the individual and small-group markets, where administrative overhead consumes as much as 30 percent of premiums compared with administrative expenses of less than 3 percent for Medicare.

Rubino disputes this well-known fact, citing a study by the Heritage Foundation (a conservative think tank whose funders include insurance, tobacco, pharmaceutical and oil companies). The "study" has been thoroughly refuted by leading health care policy experts such as Yale professor Jacob Hacker. Even the Congressional Budget Office has found that administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent of spending by private plans under Medicare Advantage. This is a near perfect apples-to-apples comparison of administrative costs, because the public Medicare plan and Medicare Advantage plans are operating under similar rules and treating the same high-cost population.

No doubt, insurers can rein in costs by:

Over the last 10 years, insurance companies have experienced record profits while average families have seen premiums skyrocket.

In October, America's Health Insurance Plans, the industry's lobbying group, declared that insurance premiums will shoot skyward if the Senate Finance Committee health reform bill was enacted. A few days later AHIP's industry cousin, the Blue Cross and Blue Shield Association, released a report predicting "premium increases of approximately $1,500 for single coverage for a year and $3,300 for family coverage" under the Finance Committee bill.

Without a public option to constrain them, private insurers can and will continue to raise our premiums. Unless they have to compete with a strong national public health insurance plan, private insurers will continue to dominate the noncompetitive markets they control today.

Rubino would have us believe that real competition does exist in the state's insurance market. In reality, a few private health insurance companies have built a near-monopoly in New Jersey with Horizon controlling 43 percent of the market (the U.S. Justice Department considers a market "highly concentrated" if one company holds more than a 42 percent share of that market). Local markets are even more concentrated. In Ocean City, for example, Horizon and Aetna together hold 74 percent of the market.

The overwhelming majority of Americans favor a public health insurance plan competing alongside private insurers. In a recent NBC/Wall Street Journal poll, 72 percent said it was either "extremely important" or "quite important" for people to have the choice of a public option while just 23 percent said it was "not that important" or "not at all important."

While many aspects of our health care system need reform, and as Rubino correctly points out Medicare reimbursement rates are among them, a public health insurance plan is essential to drive down costs, promote competition and expand quality, affordable coverage.

Rubino is correct about something else; we do have our work cut out for us. We are waging a major battle against wealthy, entrenched interests (including Horizon) who will stop at nothing to defeat meaningful health care reform in order to maintain a profit-driven health care system that allows insurance industry executives to prosper while hard-working families are bankrupt by unaffordable health care bills.

Phyllis Salowe Kaye is executive director of New Jersey Citizen Action. Dudley Burdge is health care spokesperson for Communication Workers of America (CWA) in New Jersey.

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