Health Care Reform: It's Insurer Vs. Insurer

At a command post in a Marriott hotel outside Washington, D.C., 150 members of the National Association of Health Underwriters gathered in late March to make plans for what promises to be a long battle. Their marching orders: Whip up grass-roots support for the private health care system. Their artillery include a video promoting the virtues of private health care to show to anyone who'll watch and tips on convincing the local press and legislators that a government-run system would be a disaster. "Our best weapon is the consumer," says Joseph L. Pugh, an insurance agent in Gulfport, Miss. "We hope that they'll put pressure on their lawmakers."

The NAHU campaign is just part of a multimillion-dollar lobbying and public-relations blitz by the insurance industry aimed at fending off a major overhaul of the nation's $700 billion health care system. To insurance companies, the outcome of this war is as crucial as Normandy was to the Allies. As medical costs soar, so does support on Capitol Hill for legislation that would imperil private medical coverage.

MARKET APPROACH. Indeed, that threat is prompting a deep, behind-the-scenes fissure in the once smug insurance industry. Most insurers concede that some kind of reform is necessary and inevitable. But since any change is likely to lead to an industry shakeout, factions are squabbling over the shape of the overhaul. Some small companies are likely to go under if major reforms pass.

Health insurers are united on one thing, though: They oppose the two farthest-reaching reform blueprints, both offered up by congressional Democrats. One would institute a government-run health care system; the other would require employers to cover workers or pay a tax into a fund for the uninsured and would set national fees for providers, which insurers fear would lead to premium setting. Insurers have hired a dozen high-powered public-relations firms to stir up public opposition to both ideas.

Instead, like the Bush Administration, the industry prefers a market-oriented approach. The Health Insurance Association of America (HIAA), which represents 300 commercial insurers, is behind what is by far the largest lobbying effort. It's spending $4 million on its "Campaign to Insure All Americans." A key piece of its attack are polls conducted by a team of Democratic and Republican pollsters showing that 59% of respondents favor a system of private insurance. The trade group has publicized the results in ads and distributed them at statehouses and on Capitol Hill. "We want to take the issue to the American people and let them decide," says Linda Jenckes, senior vice-president of the HIAA.

The industry group also is asking each member to appoint an employee as campaign coordinator. These employees will encourage colleagues and business clients to lobby state and federal legislators and candidates for office. The goal is to convince Congress that the public doesn't want radical intervention.

`FAX ALERTS.' The trade group hopes to defuse a congressional overhaul by pursuing state-level changes aimed largely at reforming coverage for small employers. These small-group market reforms would end the practices of some insurers that have profited by cherry-picking the healthiest groups from a community's insurance pool. That has left small companies with sick workers unable to find affordable insurance. The industry plan would bar insurers from denying coverage to any group that wants it, from dropping sick individuals in a group, and from widely varying premiums between low- and high-risk companies.

The 50-state strategy is notching up some successes. Fifteen states have already passed small-group market reform. In March, the Florida insurance lobby organized small businesses to push its bill. At key moments, the HIAA sent out "fax alerts" to small employers, who called legislators using a toll-free line set up by the lobby. They swamped the coalition of senior citizen groups and labor that was pushing for a state government takeover of the system.

The industry's use of small employers in Florida is typical of the way insurers exploit relationships they have developed with other businesses. Insurers have joined hospital, drug, and technology manufacturers in the Healthcare Leadership Council, which lobbies for private approaches to reform. The council's president is also a co-founder of the Healthcare Equity Action League (HEAL), which includes health care companies and small businesses. HEAL is unleashing a grass-roots campaign by small companies, arguing that the Democratic tax plan would drive many of them out of business.

The insurers' influence in the Business Roundtable has paid off, too. The BR, which includes large companies hammered by huge medical bills, has released its own reform principles. On the list is support of the managed care networks large insurers run that scrutinize doctors' and hospital practices. The chairman of the group's task force: Prudential Chairman Robert C. Winters.

BLACK EYE. It's that kind of offensive, though, that's dividing the industry. Larger companies are behind the push for small-market reform. If small, aggressive insurers can't skim off the best risks, larger companies could reenter this market. They also complain that cherry-picking, which has left many middle-class workers without coverage, has given the industry a black eye--just when it needs public support. "The public thinks the insurance industry will take care of itself before it takes care of its customers," says Robert L. Laszewski, executive vice-president of Liberty Mutual Insurance Co.

Large companies also differ with the HIAA over its state strategy. Hoping to help shape reform, they're backing a push by Senate Finance Chairman Lloyd Bentsen (D-Tex.) for legislation to reform the small-group market. If his bill comes up this year, they'll be fighting the HIAA, which fears that the bill could become the vehicle for price controls.

Some small companies are fighting back. On Apr. 22, 13 insurers were set to announce the formation of the Council for Affordable Health Insurance, which will resist small-market reforms. They argue that these changes, by requiring coverage of sicker workers, will raise premiums for small companies. "The lady at the cleaning establishment can't afford insurance now," says Paul Durant, president of the Universe Life Insurance Co.

Another crack in the industry has appeared over the push for managed care. Many insurers can't create the huge networks that industry titans offer. But the "Gang of Five"--CIGNA, Prudential, Metropolitan Life, Aetna, and Travelers--have been meeting privately on ways to promote these networks as part of any federal reform package.

Blue Cross & Blue Shield even supports the idea of requiring that all health care be provided by government-certified networks. A recent Blue Cross ad went so far as to promote the notion that "the government should play a regulatory role." Some Gang of Five members find this appealing, too. If health care is to remain private, "substantial reforms must take place in the delivery of medical services," says Paul P. Cooper III, a vice-president at Prudential.

For now, the assault by the insurers appears to be paying off. Democratic proposals to overhaul the system are stalled on Capitol Hill. And more modest ideas such as managed care and medical malpractice reform are gaining currency among lawmakers on both sides of the aisle. But no matter how the debate plays out, one thing is clear: The health insurance industry will have to change, or there won't be an industry left at all.

       -- No U.S. price controls
       -- No state laws mandating specific benefits
       -- State reforms prohibiting insurers from turning down small employers that 
      want insurance
       -- State reforms stopping insurers from charging high premiums to small firms 
      with sick workers
       -- Malpractice reforms
       -- Federal reforms regulating insurance sold to small employers
       -- Federal certification of managed care networks
       -- Use of co-ops to buy coverage for small employers
       -- Any reforms regulating insurance sold to small employers
      DATA: BW
Before it's here, it's on the Bloomberg Terminal. LEARN MORE