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Health Insurers Say Obama Failed to Tackle Medical Expenses

Posted on 10 Sep 2009

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Health insurers said President Barack Obama's proposal to tax the most expensive benefit plans and create a public alternative to private coverage fails to tackle the causes of escalating medical expenses.

The public insurance option ignores the “central issue” of slowing the growth of health-care costs in the country, said Ronald A. Williams, chief executive officer of Aetna Inc., the third-largest U.S. health insurer. Obama "stopped short of addressing health-care reform," said Kristin Binns, a spokeswoman for WellPoint Inc., the second-largest by sales.

Obama, in his speech last night to Congress and the public, said he won’t “back down on the basic principle that we will provide you with a choice” if private insurance is unaffordable. Insurance companies will benefit from his proposals to extend insurance to tens of millions of people lacking coverage, so taxing the providers on their most- expensive policies is fair, he said.

“If I were a health-plan executive, I’d be shaking in my boots,” said Sheryl R. Skolnick, an analyst with Pali Capital LLC, a New York-based financial services firm, in an interview. Those supporting a public option insurance plan “got a shot in the arm,” she said.

Health insurers said they agreed with Obama that an overhaul needs to happen. Obama also won promises of support from drugmakers, for-profit hospitals, and the American Medical Association, the largest U.S. doctors’ group, which cited his promise to test “demonstration projects” for avoiding expensive malpractice lawsuits.

‘More Agreement’

“We have momentum and I think we have more agreement than disagreement on critical issues” of ensuring the security and affordability of coverage, said Williams, whose company is based in Hartford, Connecticut.

“There are other sectors whose profits dramatically exceed our modest profits,” Williams said.

Publicly traded insurers generated about $11 billion in net income in 2008 and nonprofit Blue Cross Blue Shield plans made less than $2 billion, said Carl McDonald, an Oppenheimer & Co. analyst in New York, in a July note issued when Democrats first raised the idea of industry fees.

Obama hasn’t given a fair portrait of the industry, or the true reasons for rising medical costs in the U.S., said Binns, the spokeswoman for Indianapolis-based WellPoint. UnitedHealth Group Inc., of Minnetonka, Minnesota, is the largest provider.

“We disagree with the president’s continued mischaracterization of the health-care industry,” she said in an e-mail. “Health insurer profits account for less than 1 percent of every health-care dollar.”

‘Leading the Effort’

The industry has been “leading the effort to increase access to preventive services and wellness programs,” which Obama said will curb health spending, she said.

“We would have liked to hear more about policies to bend the trend,” Binns said. That would include changing the way doctors are reimbursed to focus on the quality of care, rather than the quantity of tests or procedures.

The American Medical Association applauded the president’s inclusion of medical-liability reform as a potential way to lower expenses.

It “is something we’ve mentioned for years is a way to reduce unnecessary costs, as well as streamline health-care waste we have in our system,” said James Rohack, president of the Chicago-based AMA, in a telephone interview.

“Paying for the cost of this without adding a dime to the deficit means you’re going to have to eliminate unnecessary costs,” he said.

Some estimates put the price of unneeded tests as high as 20 percent of overall health-care expenses, Rohack said. “If one can eliminate even half of that, you’re going to have a significant health savings,” he said.

Drugmaker, Hospital Support

Drugmakers and hospitals vowed support for Obama’s pledge to broaden access to health care to almost all Americans.

“We will continue to be a constructive partner to help meet this goal,” said Billy Tauzin, the president and chief executive officer of Pharmaceutical Research and Manufacturers of America, the industry group in Washington whose members include Pfizer Inc., the world’s largest drugmaker.

“President Obama’s speech to Congress hit the right tone at the right time and adds an exclamation point to the need to act quickly to enact comprehensive health reform,” said Chip Kahn, president of the Federation of American Hospitals, the Washington trade group for investor-owned hospitals, including Tenet Healthcare Corp., based in Dallas.

The drug industry announced June 21 a deal with the White House and Senate Finance Committee to forgo $80 billion in profits over a decade in part to discount brand-name drugs for elderly Americans.

The hospital industry agreed in July to $155 billion in cost savings over 10 years.

“Those deals obviously paid off tonight,” Skolnick said. “I didn’t hear a peep about drug costs. I heard them talk about hospital infection rates, but there was nothing in this that would be negative for the hospitals that wasn’t already known.”