The New York Times
October 23, 2004
Momentum Builds for U.S. Role in Paying Highest Health Costs
By Milt Freudenheim and Robert Pear
In seeking to rein in the costs of the runaway insurance premiums paid by employers and their workers – nearly $520 billion this year and rising- politicians of both parties and some business groups are pushing an idea known as reinsurance.
Where the politicians differ is in the details – and the cost to the government.
Senator Kerry says his proposal would reduce health insurance premiums by about 10 percent… Senate Republican leader, Bill Frist… envisions a federally chartered but privately run reinsurance organization, analogous to the Freddie Mac and Fannie Mae mortgage companies… The proposal is in such early form
that cost estimates are not available. But it assumes a large role for the insurance industry, which already offers reinsurance policies without government backing.
The United States Chamber of Commerce, which represents many small businesses and has long called for government action on health care costs,
describes reinsurance as “a worthy concept, an excellent use of federal dollars.”
The health insurance industry is also studying the reinsurance proposals along with various government options like tax credits and other subsidies. “People are starting to think about these concepts,” said Karen M. Ignagni, president of America’s Health Insurance Plans, a trade group in Washington.
http://www.nytimes.com/2004/10/23/business/23care.html
Comment: As we assess the various proposed solutions for reform, we should
carefully examine precisely which problem or problems the solution is designed to solve. Does the rhetoric being used to support the proposal match the true intent?
Reinsurance is designed to transfer risk from an insurer to another insurer. Its purpose is to strengthen the primary insurer by reducing its risk. So proposals to provide reinsurance are to address the problem of the weakened status of the insurers. But is that a major problem in health care today? Health insurers are the darlings of Wall Street. Many have converted from non-profit to for-profit, and have merged to gain near monopolistic control of many health insurance markets. Their profits are setting records.
The primary function of insurers is to pool risk, protecting those with greater health care needs from financial ruin. Now we want to relieve the insurers of this crucial function as we provide them with even more security for their profits? It’s the patients, not the insurers, who need to benefit from health care reform!
The current rhetoric is that reinsurance would insulate employers against higher costs of employer-sponsored health care coverage. But the most ambitious proposal would provide only a 10% reduction in premiums. Premiums have been increasing at double digit rates for the past few years. A 10% reduction would give us only a one year relief from premium escalation. And it would provide absolutely no relief from true increases in health care costs since the reinsurance would be funded by federal tax increases or premiums paid to the federally chartered reinsurers.
Its no wonder that America’s Health Insurance Plans (AHIP) and the United States Chamber of Commerce (USCOC) are in support of reinsurance. The insurers receive an infusion of tax dollars, and the employers are relieved
of the need to fund a portion of their health benefit programs. Its a win-win for AHIP and USCOC, but, alas, once again, the patient-employee-taxpayers are the losers.
