Health Insurers on the Attack

| Wed Jan. 13, 2010 10:12 AM PST

Guess what? It turns out that health insurance companies oppose healthcare reform and are spending millions of dollars to defeat it. That wouldn't be a big surprise except for the fact that healthcare reform is supposed to be a boon to the insurance industry, providing them with millions of new customers (courtesy of an individual mandate that forces everyone to buy insurance). So why are they fighting it? Matt Yglesias takes a stab at explaining:

The fact of the matter is that even though the new mandate/subsidy structure will give at least some insurers a bunch of new customers, the medium-run trajectory of reform is bad for private insurers. Right now, insurers are largely shielded from competition and are almost 100 percent immune to needing to please their actual customers, getting to deal with HR bureaucracies instead. In an Exchange-based world, individuals will be choosing from among several plans and insurers will be accountable to customers. What’s more, the principle that it’s the government’s job to make health care work will lead to pressure for further regulations and further squeezing of industry profit margins.

I think that's pretty much right, and I'd add that community rating (which requires insurers to charge everyone the same price) will add to this pressure. With risk adjustment taken away from insurance companies, they become purely administrative middlemen, and that's a dangerous thing to be. Pure paper shufflers are a lot easier to compare to Medicare's administrative bureaucracy, and they won't benefit from that comparison. The political pressure for them to continually cut costs and profits will just keep growing.

On the other hand, this has always been the case, so why did the insurance industry play nice at first and only turn on the attack ads recently? Hypothesis 1: It took them a while to figure this out. I'm skeptical of this. Hypothesis 2: They feared this all along, but figured the alternatives were even worse. Now, however, they're starting to believe that they might be able to defeat healthcare reform completely, so they're throwing caution to the wind.

All the more reason for Democrats to get their act together and hammer out a compromise that can pass the House and the Senate. Unfortunately, Josh Marshall rounds up some evidence here that Dems are stuck in their usual circular firing squad and aren't making much progress, even though the differences between the House and Senate bills are, frankly, fairly minor. But as a friend of mine likes to say, "Republicans are evil and Democrats are idiots." I sure hope they prove him wrong for once.

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