Health-Care Allies...for Now

Insurers, drug companies, and advocates agree health care needs fixing. But questions linger about who will foot the bill

The last time Washington tried to fix health care, powerful industry interests scuttled the Clinton Administration's initiative as Big Pharma, managed care, doctors, and employers all scrambled to protect their turf.

Now consider the scene this week in Denver, where conventioneers disembarking at Denver International Airport were greeted with a pro-reform billboard from the American Medical Assn. Early in the week, more than a dozen industry heavyweights—from Pfizer (PFE) and UnitedHealth Group (UNH) to Safeway (SWY) and Medtronic (MDT)—joined San Francisco Mayor Gavin Newsom on a stage, seemingly unified in a clarion call to fix a system unquestionably broken.

Health-care reform may well have been the biggest issue going into the Democratic convention this week, and the big players are staking out some positions that, at first glance, appear surprising. The solidly Democratic audience showered some of its loudest applause (after Newsom) onto Dr. Reed Tuckson, chief of medical affairs for UnitedHealth—the health-insurance giant more often chastised than lauded by the left—when he called for better integrating prevention and community-health clinics. Tuckson derided "myopic quick-hit foolishness" masquerading as real reform.

Fixing What's Broken

Tuckson even echoed Newsom, the architect of San Francisco's controversial universal-coverage push, in calling for "better leadership—and I mean leadership beyond the rhetoric." Amgen (AMGN) President and CEO Kevin Sharer called for a strong, well-funded Federal Drug Administration, and afterward said either an Obama or a McCain Administration could do a fine job of fixing what's broken.

But how deep does the agreement among longtime antagonists really run? Scratch the surface, and the divisions quickly become apparent.

For instance, most experts, on all sides of the debate, agree that preventing illness and successfully treating chronic disease are critical to fixing health care. In many areas, data are scant to show which interventions are most effective, making calls for research compelling. But such calls could also become a way to stall changes that various players don't like.

On the dais, Trace Devanny, president of electronic-medical-records marketer Cerner (CERN), advocated wringing efficiencies out of health care with information technology, then plowing the money back into preventive care—a common refrain. But afterward, Devanny was more explicit: "At the end of the day, there are $700 billion a year spent on administration," he told BusinessWeek. "Insurance companies as we know them need to be redefined."

Deep Unhappiness

That's the sound of the health-insurance industry's ox being gored, and chances are good they won't take it sitting down.

The one thing that has clearly changed from 1993 is that insurers and other health-care players can't wish the issue away. As private-sector health costs keep climbing, lawmakers are no longer just hearing about the uninsured, says Bruce Bodaken, chairman and CEO of Blue Shield of California. They're hearing from the insured, who are deeply unhappy—a state of affairs that isn't politically sustainable (, 8/18/08).

Six years ago, Blue Shield, a nonprofit insurer with 3.4 million members in the Golden State, proposed comprehensive reforms similar to Governor Arnold Schwarzenegger's recently failed health-care plan. Bodaken figures the company's proposal would have slashed its own excess margin—the revenue left over after expenses that nonprofits can reinvest in operations—roughly in half, to about 2%. The company's logic: If reform really starts rolling, who knows what form it will ultimately take? Bodaken reasons it's better to help shape it than try to stall it and risk failing. When the governor's program collapsed in Sacramento, Blue Shield decided to shift its focus to Washington.

Bodaken acknowledges that it's relatively easy for a nonprofit to be cavalier about the bottom line. But insurers of all stripes "are going to have to deal with it some way—and 2% is better than zero," he says.

Before it's here, it's on the Bloomberg Terminal.