Insurers May Face Fees To Help Fund Health Overhaul (Update 1)

July 09, 2009 - Bloomberg.com
By Laura Litvan and Kristen Jensen

By Laura Litvan and Kristen Jensen

Insurance companies should use their profits to help fund as much as $100 billion of a landmark overhaul of the U.S. health-care system, senators including Democrat Charles Schumer of New York said.

Schumer and other Democratic members of the Senate Finance Committee, which is leading the effort to forge a bipartisan compromise on health care, said they will probably assess fees on insurers, a plan that drew fire from the industry.

Industry leader UnitedHealth Group Inc. and rivals are facing pressure to contribute after drugmakers and hospitals agreed to billions of dollars of cost savings. Lawmakers are struggling to find new sources of revenue as they contemplate spending $1 trillion over 10 years to carry out the overhaul, PresidentBarack Obama’s top domestic priority.

“We need the insurance companies to step up to the plate to be part of the solution,” Schumer said at a news conference in Washington yesterday.

Lawmakers are trying to reduce health-care costs and expand coverage to the 46 million Americans who lack insurance. So far, the effort has mainly featured missed deadlines as the House and Senate race to pass their own versions of the legislation by an August goal set by Obama, a Democrat.

Obama vowed to hold the House and Senate to the deadline.

“Deferring reform is nothing more than defending the status quo,” the president said at the White House yesterday. “Those who would oppose our efforts should take a hard look at just what it is that they’re defending.”

Panel Clears Plan

Obama scored a victory when the Senate Health, Education, Labor and Pensions committee became the first congressional panel to vote on a plan, clearing its measure on a party-line, 13-10 vote yesterday. That plan will be merged with one that comes out of the Senate Finance Committee.

House Democrats unveiled their version on July 14, calling for a public-health insurance plan, mandates on employers and individuals to purchase coverage, and additional taxes on the wealthiest Americans to fund the overhaul.

The three House committees with jurisdiction over health care are scheduled to work today on the legislation. The Education and LaborEnergy and Commerce and Ways and Means committees aim to finish their portions of the bill by tomorrow or early next week, staff members said. Democratic leaders said they want to bring a unified bill to the House floor for a vote before the August recess.

Finance Panel Pressured

The Senate Finance Committee may take longer, with Chairman Max Baucusunder pressure to curb his efforts to reach out to Republicans.

The panel’s negotiations aren’t likely to get any easier with the plan by the panel’s Democrats to tap the insurance companies. It was criticized by America’s Health Insurance Plans, a Washington trade group that represents the industry.

“As families and small businesses struggle during the current economic slowdown, now is not the time to impose new fees on health-care coverage that will make coverage less affordable,” Robert Zirkelbach, a spokesman for the group, said in an e-mailed statement.

During their press conference, Democratic senators said insurers should pay at least $75 billion to help finance the legislation. They cited industry earnings, withRobert Menendez of New Jersey saying the companies are making profits “on the backs of American families across this country.”

‘Not Fair’

“Every other industry is kicking in,” Schumer, 58, said. “For the insurance industry to stand aside is not fair.”

Schumer said the top 10 U.S. health insurers saw profits jump by 428 percent between 2000 and 2007.

“That profitability is enough to make big oil executives blush,” Schumer said.

Yet two of the top three U.S. health insurers reported that profits declined in the first quarter. The No. 1 insurer by sales, Minnetonka, Minnesota-basedUnitedHealth, said net income fell 1 percent from a year earlier as growing unemployment kept Americans from buying medical coverage.

Indianapolis-based WellPoint Inc., the top health insurer by enrollment, said net income dipped 1.3 percent, mostly on investment losses. Only Hartford Connecticut-based Aetna Inc. reported a jump in profit, a 1.4 percent increase. Aetna had the highest profit margin of the three last year, at 4.5 percent.

The Standard & Poor’s 500 Index sub-index of six managed- care companies fell 0.9 percent in recent trading.

Industry Taxed

The insurance industry has already agreed to guarantee insurance for people with pre-existing conditions and stop basing premiums on an individual’s gender or medical condition, said industry spokesman Zirkelbach. His organization proposed those changes in exchange for a requirement that everyone get coverage.

“Health plans are currently taxed at both the federal and state levels, including assessments that help fund high-risk pools in 30 states,” Zirkelbach said.

WellPoint, the No. 1 health insurer by enrollment, also rejected the idea of a fee, saying it would “further exacerbate” cost shifting.

“This proposal is another way of taxing health benefits for all Americans with private coverage,” the Indianapolis- based company said in a statement yesterday.

‘Broad Support’

Schumer said there is “broad support” among Democrats on the finance committee to include new fees on insurance premiums, and “some of the Republicans” have said they will consider it. While he declined to discuss ways it might be structured, he said lawmakers want to find a way to prevent insurers from passing the fees on to their consumers.

“I personally wouldn’t have a problem” with imposing fees, said Senator Olympia Snowe, a Maine Republican.

Obama has already proposed changes in health-care policy that would have an impact on insurers. His budget plan for this year calls for requiring Louisville, Kentucky-based Humana Inc., UnitedHealth, WellPoint and other insurers to offer competitive bids to Medicare Advantage plans, which bundle benefits and add more services than what the elderly get when they obtain coverage directly from the government.

The Medicare proposal would save $175 billion over 10 years, starting with $11.2 billion in 2012, according to the budget plan. The insurance companies are paid on average 14 percent more than it costs Medicare to provide benefits directly, according to government estimates.

Backing Overhaul

While the details of a final plan are unclear, a poll released today shows that a majority of Americans believe major changes to the system are necessary. All told, 65 percent of the 1,000 likely voters surveyed said either a “complete overhaul” or “major reform” is needed, including 83 percent of Democrats and 46 percent of Republicans who participated.

Asked if changes to the system would slow the growth in costs, almost two-thirds of participants agreed. Democrat Celinda Lake and Republican Bill McInturffconducted the July 6-9 poll for America’s Agenda, a group of businesses, labor unions and government leaders working toward improvements in health-care quality and lower costs.

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