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Health Insurers Propose to Stop Charging More to Cover the Sick

By Rebecca Adams, CQ Staff Writer

March 24, 2009 -- The health insurance industry offered Tuesday to phase out the practice of charging people more for their coverage if they are sick. The proposal, sent in a letter to Senate committees working on comprehensive health care legislation, would apply only to the individual market that provides insurance for about five percent of people under 65 who have insurance and is contingent on lawmakers' willingness to impose a mandate requiring individuals to buy health insurance.

Health industry lobbyists said the move is a significant concession that could provide momentum for health care legislation this year.

The letter by America's Health Insurance Plans (AHIP) and the Blue Cross Blue Shield Association was presented during a hearing in the Senate Health, Education, Labor and Pensions Committee Tuesday. The insurers also said that they should still be able to charge more based on age, the geographic location of patients, family size and other factors.

The offer also is intended to stave off efforts among congressional Democrats in creating a public health insurance program that would compete with the private insurers and potentially pose a serious threat to their business.

The health insurance industry has already said it would be willing to cover everyone without excluding anyone for preexisting conditions. A health care expert said Tuesday's proposal did little to advance the debate because if every American was required to have coverage sold by the insurers, many observers already assumed that the industry would not charge unhealthier people more than healthy people. Adding more healthy people to the pool of people with insurance and spreading out the risks could compensate for the coverage of unhealthy people who have higher medical costs.

"There's no breakthrough here," said health policy consultant Bob Laszewski. "It doesn't move the ball forward at all. What's the big deal?"

He called the offer "an attempt at public relations more than a serious proposal" that is driven by the need to convince Democrats that the industry is willing to compromise and that there is no need to create a public coverage plan. "The industry needs to do all it can to look like good guys," he said.

A witness at Tuesday's hearing offered muted praise, saying it was a good first step but that the concessions should go farther and apply to more people. Len Nichols, director of the health policy program at the New America Foundation, said insurers should stop basing the cost of health insurance premiums on health status for everyone, not just for people in the individual market.

Karen Ignagni, president and CEO of AHIP, testified that the industry is willing to embrace tougher regulations and that health insurers believe that health overhaul legislation should happen this year.

"If we can get everybody in, we can change the system dramatically," she said. Spokesman Robert Zirkelbach noted that the letter marked the first time the industry has ever said that it could stop varying premiums based on patients' health conditions.

Health industry officials clarified that one of their primary underlying goals is to prevent Congress from creating a new public plan. They say that a large public program would undermine the private insurance that forms the core of the nation's health coverage system.

Ronald A. Williams, the chairman and CEO of insurer Aetna, Inc., had a straightforward answer when asked if a public plan can co-exist and compete fairly with private insurers.

"My opinion is no, it cannot," Williams said. He argued that a public plan would operate in a similar manner as Medicare, which he said does not negotiate but rather uses its leverage and size to set rates that providers must accept. Insurance industry officials say that providers charge private insurers more to compensate for the low rates paid by Medicare, Medicaid and other public health programs.

Janet Trautwein, executive vice president and CEO of the National Association of Health Underwriters, was equally adamant in opposing the plan before the committee. She said it was not possible for private plans and a new public program to compete on an equal playing field.

However, Karen Pollitz, professor of the Health Policy Institute at Georgetown University, expressed the opinions of many Democrats when she argued that public programs cover people that private insurers will not. "It's absolutely essential" to have a public plan, she said.

The letter was also sent to Senate Finance Committee Chairman Max Baucus, D-Mont. A Baucus aide said the chairman is pleased that the insurance industry realizes that business as usual is no longer acceptable. The aide said Baucus "recognizes that a public health insurance option raises concerns, but remains committed to the goal of making it workable."

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