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Sebelius Urges Health Care Insurers to Trim Their Profits

By Jane Norman, CQ HealthBeat Associate Editor

March 10, 2010 -- Health and Human Services Secretary Kathleen Sebelius, at a health insurance industry meeting on Wednesday, pressed insurers to "give up some short-term profits" for the good of the country and assist congressional Democrats struggling to move toward votes on a health care overhaul measure.

Sebelius, President Obama and other administration officials seeking to build public support for the overhaul have repeatedly attacked the health insurance industry for proposed double-digit premium increases in the individual market, such as a 39 percent hike proposed by Anthem Blue Cross Blue Shield for its California customers. Insurers defend the premium increases as the product of skyrocketing medical costs they can't control, and they've strongly objected to what they contend is a vilification of their business.

At the policy conference organized by America's Health Insurance Plans (AHIP), a main industry group, Sebelius defended the attacks and said it's up to insurers to begin to shoulder responsibility for changing the system. "I am certainly not here to vilify hard-working employees of insurance companies across the country or blame insurance companies for all the problems in our health insurance system," she said.

But she laid out two paths for insurers: They can support the status quo, which she said is unsustainable, or align with Democrats to change the system. Families and business owners must have more control over what happens with their insurance, she said.

"So there's a choice on the table. You continue the opposition to reform," said Sebelius. "If you do and reform fails . . . by next March, when you're meeting again, premiums will take even a bigger bite out of Americans' wages, your market will shrink even further, more Americans will lose their employer-sponsored insurance and we will have a situation where the market is unsustainable."

Small businesses will be forced to cancel coverage or not hire new employees, parents of children with pre-existing conditions will be shut out of the market or terrified of losing their jobs, and Americans will continue to dread opening their premium statements, said Sebelius.

"That strategy may work in the short run," said Sebelius, citing a recent Goldman Sachs investor call in which it was advised that insurance companies' rate increases can compensate for lost business even if the customer pool shrinks. "But that works only for a while. That kind of short-term strategy won't work in the long run."

Sebelius said the other choice is for insurers to begin calling for Democrats' comprehensive overhaul to be adopted. "Instead of spending energy attacking the parts of the proposal that you don't like, come to the table strengthening the parts that are there, that you talked about from the beginning are essential to comprehensive reform," she said.

"The second choice really may give up some short-term profits, but we also, working together, could create a sustainable health insurance market where Americans will still be able to buy coverage," she said. "It's better for the American people, I think it's better for the insurance industry and it's certainly better for our health care system."

But Karen Ignagni, president and CEO of AHIP, told reporters after the speech that insurance companies on average saw a 3.2 percent profit in 2009. "Insurance companies must be solvent to pay claims," she said, and "we have to have a discussion much broader" than insurance industry profits.

AHIP this week also launched a TV ad campaign shifting the blame to doctors and hospitals for health care spending increases. The ad has a pie chart showing "the health care cost pie" that says health insurance company costs are just 4 percent of all costs.

Sebelius' remarks came as Democrats on the Hill attempt to put together a strategy in which they can cast votes on an overhaul bill yet this month prior to a recess scheduled to begin March 26. Discussions continue on how to do that using a two-part strategy in which the House would approve the Senate-passed overhaul bill and both chambers separately would adopt a "corrections" bill making changes in the Senate bill.

Sebelius read from letters she said she's received from Americans faced with premium increases and said the better long-term business model for the industry is a stable market rather than ever-increasing premiums. "It's not too late to work on this issue together," she said. "Work with us to pass reform that will prevent Americans from seeing their coverage dropped when they're sick and need it most."

Also, Sebelius said she wanted to repeat a request she made in a meeting with five insurance company executives last week that additional transparency be provided when rate increase proposals are filed, and that insurers disclose the health cost trends and justifications behind the proposals.

Ignagni said the group has proposed dramatic changes in the system and is fully committed to cost containment, though she said other sectors of the health industry have to step up as well. "Our members are very concerned about insurance premiums and the trajectory, especially in the individual market," she said in introducing Sebelius.

But at a press conference following Sebelius' speech, Ignagni would not commit AHIP to backing overhaul legislation, though she said insurers will present additional ideas for cutting costs. She did express support for the increased transparency and said insurers are working with the National Association of Insurance Commissioners for a template that could be used across the states for consistent reporting of proposals.

Industry officials at the beginning of the debate over health care in 2009 proposed a series of changes in the health care system that they said would improve access, and Ignagni said AHIP remains committed to those ideas. But she also said that "we have to move beyond the politics of vilification" and work on fixing the overhaul to address insurers' concerns about the impact on the system, such as the need to ensure that as many people as possible purchase insurance, thereby spreading out risk.

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