The President’s fiscal policy is based upon a flawed health care premise, and the flaws are becoming apparent to a wider audience.
This is certainly supported in recent polls. As the American people became increasingly skeptical of the Obama Administration efforts to reform health care, it became clear a new message was needed to sell the public on reform. Nancy Pelosi gave us a preview of the new strategy:
Huffington Post refers to this as the "August Offensive" against the insurance industry based on a report in the New York Times.
While the message may have more traction with a public that tends to look askance at the insurance industry, the message that the "evil insurers" huge profits are to blame for problems in health care is not supported by facts. Avery Johnson and Vanessa Fuhrmans had a recent article in the Wall Street Journal noting recent declines in Aetna's profitability:
blamed in part on members' increased use of medical services and on health providers' higher billings per case.Declines in Aetna's profitability were significant as their stock had been performing well compared to the rather notable underperformance of many of the major health insurance companies. Daniel Gross used this article as a basis for a piece in Slate where he notes insurance company stocks "have lagged the poorly performing S&P 500 since December 2007."
Gross uses the health insurers stocks' poor performance to build an argument that all that stands between the health insurance industry and failure is federal spending. As a result, doing nothing about reform is essentially nationalizing the health care industry by "stealth." This is a straw man argument, however, as no one is arguing doing nothing is the best solution. The argument is better stated perhaps the wrong reforms may be worse than doing nothing.
In stark contrast to the "Thelma and Louise" opposition we saw from major health care industry sectors during the Clinton reform, the players here have gone willingly to the negotiation table to iron out reform. While many have wondered why the insurers above all have gone willingly to make deals with an Administration that has supported a government take over of health care, we need only look at the stock performance of the major insurers in recent years to explain their willing participation:
Click images to enlarge
Source: PerfChart
There were many factors at play in the poor performance of health insurers, most notably the recent recession with its massive job losses. In an industry that has been long tied to the employer benefit model, job loss would ultimately result in loss of members. Aetna had performed well last year by aggressively seeking an increase in the commercial risk market where the insurer insures directly rather than through the employers. Other insurers had priced the employer programs low and suffered losses through increased usage and high costs of those remaining members. Because Aetna had been profitable it didn't adjust its employer insured programs and is feeling the effect of the overusage that stems from anxiety the insured may lose their jobs and hence their insurance. It should be noted that despite lagging performance, insurers have tweaked their business models and regained some profitability, though only recently. In the long run, health insurers have tended to underperform rather than overperform other market trends.
Increasing costs, overusage of medical services and the employer benefit model have left insurers taking losses rather than the huge gains Speaker Pelosi and the Administration would have you believe. Insurers were willing to participate in much needed reforms as long as there was no government sponsored "public option." Other industry execs have called such a plan a dealbreaker as well. The insurers though have by far the most to lose, as the public option would surely destroy the insurance industry as even some in Congress are willing to admit. Despite long term negative attitudes towards insurers, the public seems to have an "ear worm" telling them government run Obama care would be far worse. It seems unlikely the new "insurers are villains" message based on false assumptions is going to reverse that trend.
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