U.S. News

If Bills Fail, a Quandary for Insurers

Reed Abelson|The New York Times

With the possible collapse of the Congressional health care effort, health insurers might seem to have reason to celebrate. The legislation threatened to remake much of their business, with the prospect of burdensome government regulation and less profit from selling coverage to individuals and small businesses.

Ronald A. Williams
Jim Watson | AFP | Getty Images

Indeed, some insurance stocks initially rose on expectations that the Massachusetts Senate vote might have derailed the Democrats’ health overhaul. But more of the same might not actually be such good news for insurers, some health policy experts and Wall Street analysts say.

“In the longer term, reform would have been better for them,” said Les Funtleyder, the health care strategist for Miller Tabak & Company, a New York investment firm. He acknowledged that insurance stocks might benefit in the short run as investors expressed their relief over the diminishing odds of a health care bill.

The health care legislation under construction in Congress would force the insurers to conduct business very differently, but the companies had already agreed to some of the most fundamental changes. One was their pledge to offer coverage to everyone, regardless of medical status, if the government could ensure that people, even the young and healthy, would have to sign up.

In return, Mr. Funtleyder noted, Congress was potentially delivering as many as 30 million new customers to the insurance market — many of whom would be able to afford coverage because the government would subsidize the cost of premiums.

“That’s real revenue, even for Wall Street,” he said.

But now, in the possible absence of forced change to their business, the insurers still face the daunting challenge of selling a product that is increasingly out of reach for more Americans as the cost of medical care — and thus premiums — continues to climb.

Moreover, the industry’s main business of selling coverage through employers has largely stalled, while the weak economy has speeded the loss of customers as people lose their jobs and their health insurance.

“People are still being crowded out of the market because they can’t afford it,” said Sheryl R. Skolnick, a health care analyst for Pali Capital in New York.

If the health overhaul is indeed dead, she said, the critical question becomes “how do you grow these businesses?”

The insurers say they understand the need for change in their business, particularly so they can offer more affordable coverage to people who must buy insurance on their own and are in poor health.

“There are legitimate, real issues that aren’t going away that we need to address,” said Ronald A. Williams, the chief executive of Aetna, one of the big for-profit insurers.

But Mr. Williams expressed frustration that the effort so far in Washington had been focused on how to overhaul the insurance market, rather than looking at ways of improving the health care system as a whole — so as to deliver better care at lower prices. “We have to get at the factors that are driving health care costs,” he said.

Despite its often vociferous opposition to specific elements of the bill, the insurance industry says it is still in favor of many of the changes it embraced well before the current health care bill began to evolve.

“We strongly support reform,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the industry trade group. “We do believe there are reforms that can be done that produce greater health security and more affordable coverage to the American people.”

Industry analysts say insurers may end up having to adopt some of the changes that the legislation envisions, either on their own or as state regulators demand changes. To be sure, not everyone agrees that the health care legislation would be worse for the industry than the current situation. Some analysts say it is unclear how many of the tens of millions of people without coverage would have actually become customers under the legislation, given the weak federal financial penalties if they did not enroll and questions over how generous the government subsidies would eventually be.

Many analysts also predicted that insurers would have sharply lower profits under the legislation, which would restrict how much more they could charge to cover older, sicker people.

What's the bigger risk?

One concern of insurers and others was that the legislation would simply expand coverage without addressing the other fundamental problems of the health care system and make the problem of rising costs even worse.

If coverage were expanded without cost controls, it would only “accelerate a crisis that people already knew was coming,” said Michael A. Turpin, a former insurance company executive who is now a senior executive at USI Holdings, an insurance brokerage.

Policy analysts say many insurers realize that even without legislation they might have no choice but to try to come up with more successful ways to keep costs under control and, therefore, be able to offer coverage that remains affordable.

“I think these companies are going to be very aggressive,” said Paul H. Keckley, the executive director for the Deloitte Center for Health Solutions, a research arm of the consulting firm Deloitte.

But without the aid of the government through some provisions of the legislation, some policy analysts say the insurers might be hard pressed to rein in the fees charged by hospitals and doctors.

“They’ve lost all the leverage reform would have given them,” said Len Nichols, a health care economist for the New America Foundation, a policy research organization that supports an overhaul.

And the insurers say they know they cannot fix many of the problems in the health care system without the support of the government. “This should be a public-private partnership to achieve the type of reform people are looking for,” said Mr. Zirkelbach of the insurance trade association.

For insurers, the largest risk may be that without a government-led overhaul, their industry faces an even bleaker future should medical costs and premiums continue to soar, perhaps eventually prompting draconian changes from the government.

By the time Congress dares to try again to overhaul health care, some analysts predict, the problems with the system might be so acute that Washington might regulate the insurers more heavily than has been considered for the current legislation — or flirt even more with the idea of the federal government becoming directly involved in providing insurance.

“It’s going to come back to the forefront again,” predicted Matthew Borsch, an analyst at Goldman Sachs who follows the industry and says the insurers face an increasingly daunting environment. “When it comes back to the forefront, is it going to be an even scarier proposition?”