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Sobering PwC Report on Obama's Healthcare Reform...Key Findings

Original post made by !, Another Pleasanton neighborhood, on Oct 13, 2009

Brace yourself. Here are the Key Findings of the PriceWaterhouseCoopers report (Oct. '09) entitled "Potential Impact of Health Reform on the Cost of Private Health Insurance Coverage"

Key Findings

Health reform could have a significant impact on the cost of private health insurance

There are four provisions included in the Senate Finance Committee proposal that could
increase private health insurance premiums above the levels projected under current law:
o Insurance market reforms coupled with a weak coverage requirement,
o A new tax on high-cost health care plans,
o Cost-shifting as a result of cuts to Medicare, and
o New taxes on several health care sectors.

The overall impact of these provisions will be to increase the cost of private insurance
coverage for individuals, families, and businesses above what these costs would be in
the absence of reform.

On average, the cost of private health insurance coverage will increase:

o 26 percent between 2009 and 2013 under the current system and by 40 percent
during this same period if these four provisions are implemented.

o 50 percent between 2009 and 2016 under the current system and by 73 percent
during this same period if these four provisions are implemented.

o 79 percent between 2009 and 2019 under the current system and by 111 percent
during this same period if these four provisions are implemented.

For the complete report, click on the following link...

Web Link

Comments (10)

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Posted by Stay Cool
a resident of Another Pleasanton neighborhood
on Oct 13, 2009 at 12:40 pm

I think it is important to note that it is the *insurance industry sponsored* report by PWC, and therefore their conclusions come as no surprise. Here is a little background on PWC, and an analysis of the legitimacy of their findings with respect to HCR:
Web Link

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Posted by Stay Cool
a resident of Another Pleasanton neighborhood
on Oct 13, 2009 at 12:43 pm

Web Link
"In the hallowed tradition of the tobacco and energy industries, the health insurance industry has commissioned a report (pdf) projecting doom and despair for those who seek to reform its business practices. The report was farmed out to the consultancy PricewaterhouseCoopers, which has something of a history with this sort of thing: In the early-'90s, the tobacco industry commissioned PWC to estimate the economic devastation that would result from a tax on tobacco. The report was later analyzed by the Arthur Andersen Economic Consulting group, which concluded that "the cumulative effect of PW’s methods … is to produce patently unreliable results." It's perhaps no surprise that the patently unreliable results were all in the tobacco industry's favor. He who pays the piper names the tune, and all that.

All that makes it a bit hard to respond to this analysis. Seriously engaging with its methodology probably gives it more credit than it deserves, making this seem like an argument between two opposing sides as opposed to a predictable industry hit job. But totally ignoring its claims means some of them might live unchallenged. So rather than a full tour through the "analysis," here are a couple of its more representative moments.

A footnote -- how come the good stuff is always in the footnotes? -- on page E-2 of the report sort of gives away the game. It reads: "Impact assumes payment of tax on high- value plans, full cost-shifting of cuts to public programs, and full passthrough of new industry taxes." That's written to obscure, but what it means is that the report assumes no behavioral changes in response to new policies.

To illustrate how this works, let's go back to another PWC favorite: tobacco taxes. Imagine Congress slaps a $10 tax on each cigarette purchased in the continental United States. The impact is obvious: People will virtually cease purchasing cigarettes, or the trade will move onto the black market. But a PWC report that "assumes payment of tax" would assume that cigarette purchasing remains unchanged, and smokers fork over $30 bazillion (approximately) in taxes. This would mark the beginning of a heretofore unknown phenomenon: nicotine bankruptcy.

At least, it would in the world of PWC's report. But it wouldn't do so in the real world. So too with these assumptions. Economists think that the tax on high-cost health-care plans will lead employers and consumers to demand cheaper plans that do more to control costs. In fact, PWC expects that, too. They just don't build it into their estimate. On Page 6, they say, "Although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is employed." That's a bit like saying although I expect to eat doughnuts this morning, I will instruct my scale to act as if I had abstained.

Or take the assumption of "full cost-shifting of cuts to public programs." What that means, essentially, is that health-care spending is considered a constant, and every dollar that a public program cuts from its payments to hospitals is a dollar the private health-care industry has to add to its reimbursements to hospitals. Have you ever heard of that before, in any industry? If Blockbuster decides to cut costs to consumers by negotiating lower payments to movie studios, does Netflix send out a sorrowful e-mail explaining that it will have to increase its membership fee because it now needs to make higher payments to movie studios?

Another interesting bit comes on Page 2, which identifies "new minimum benefit requirements that may require people to buy coverage that is more expensive than options to which they currently have access" as one of the "root causes" of coming premium increases. In the footnote, the report complains that the Senate Finance plan requires a minimum 65 percent actuarial value (that is to say, 65 percent of what an individual is expected to need), while the Massachusetts plan only requires a 56 percent actuarial value. Other states have no minimum value. Insurers will also be forced to cover preexisting conditions, have an out-of-pocket limit, and end rescissions.

It's true, as the report says, that buying better insurance will cost somewhat more than buying insurance that doesn't cover anything. The vast majority of the people affected by this will be using subsidies, of course, but put that aside for a moment. This is part of the point of health-care reform: Insurers will no longer have the freedom to offer products that let an individual think his family his protected when the policy will do nothing of the sort. That may raise prices, in much the way that antibiotics cost more than herbal supplements, but it raises prices because it reduces the insurance industry's ability to sell a deceptive and insufficient product.

But if the PWC's report doesn't offer much in the way of trustworthy policy analysis, it is an interesting looking at the changing politics of the issue. In short, the insurance industry is getting scared. After many months of quiet constructiveness, they're launching a broadside on the week of the Senate Finance Committee's vote. The White House, which had a pleasant meeting with the industry's leadership last week, was shocked by the report, and so too was the Senate Finance Committee. The era of cooperation seems to be over, and they weren't given much advance warning. But the report might have another impact, too: The evident anger and fear of the insurance industry might do a bit to reassure liberals that this plan is worth supporting, after all."

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Posted by Billie
a resident of Mohr Park
on Oct 13, 2009 at 12:54 pm

C'mon! This is supposed to be a big surprise? Without a public option, as well as restrictions on health insurance carriers, I would think anyone could just about have guarenteed that the health insurance cartel would jump at the chance to raise their rates in order to suck up the subsidies proposed under the Senate bill just released to the floor. Plus, with the provision that everyone is required to buy health insurance, the cartel has a guarenteed income stream. You can also just bet that those folks who have been previously dropped because they had the nerve to actually get sick, or had a "pre-existing" condition will also feel the bite from the insurance cartel in higher rates.

The insurance cartel is getting its money's worth from those Senators who have accepted insurance lobby "donations". I only hope Congress steps up to the plate with some real reform when they do the work to revise and combine the House and Senate bills - and without putting the burden for health care reform on the backs of the already struggling, and definitely diminishing, middle class.

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Posted by Michael
a resident of Livermore
on Oct 13, 2009 at 1:16 pm

Billie, below is some more supportive information to back up your items. Truth and facts are quite powerful.

1) There will be transparency in the law-making process. For the past month, the Senate Finance Committee has been debating health care. But, much to the surprise of many Americans, they haven’t been debating an actual bill. They have been debating and amending a 262-page description of health care reform. It’s essentially a summary of what liberals want the bill to look like, and no member of the Committee, or the public, has seen actual legislation. The legislation will likely not be available until the bill is debated on the floor.

2) The bill won't add a dime to the deficit. Since the Senate bill is yet to be written, there are no official cost estimates. However, initial estimates of a description of the bill (which is what the Finance Committee has been debating) by the Congressional Budget Office indicate the gross cost will be $829 billion. Independent analysis by The Lewin Group, a highly respected health care policy and management consulting firm, expects the House bill to run a $39 billion deficit in the first decade, and a $1 trillion deficit in the second decade.

3) If you like the coverage you have you can keep it. Liberals in Congress continue to demand the inclusion of a public plan, a new government run health plan to “compete” against private health insurance plans. The Lewin Group calculated the impact the House bill’s public plan would have on existing health insurance coverage. It found with a public plan:

56 percent of Americans with employer-based coverage would lose their current coverage with the addition of a public plan.

Of the estimated 172.5 million people with private health insurance, there would be a decline of 83.4 million people with private coverage.

34 percent of the uninsured in America would still lack coverage.

4) The bill won't cut benefits for seniors. It is impossible to cut payments to Medicare Advantage plans without cutting benefits. The Congressional Budget Office director testified that Medicare benefits will be cut, meaning seniors' private options for their health care needs are at risk.

5) The bill won't raise taxes on those earning less than $250,000. Provisions in the House and Senate bill would lead to a tax increase regardless of income. In fact, of the folks hit by the House’s plans steep tax hikes, more than half fall in the bottom 60 percent of the income scale. Small businesses and low-income workers would be especially hit. In the Senate Finance Committee, amendments were offered that would have protected those below $250,000, and each one failed.

6) It will save American families $2500 a year. There has been no analysis to show that these bills would deliver these promised savings. In fact, mandates in the current bills would have the opposite effect, forcing many individuals to pay more money out-of-pocket, and compelling businesses to reduce wages, salaries, and job opportunities.

7) The government plan won't cover abortions or illegal immigrants. Amendments were offered in the House and Senate Committee mark-ups to clarify that abortion services would not be included and to ensure proper identification of citizenship were used in determining eligibility. Each of these amendments failed.

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Posted by Stay Cool
a resident of Another Pleasanton neighborhood
on Oct 13, 2009 at 1:29 pm

You again forgot to give credit to the Heritage Foundation for your cut and paste.

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Posted by Michael
a resident of Livermore
on Oct 13, 2009 at 1:52 pm

Anything untrue in the Heritage piece?

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Posted by Stay Cool
a resident of Another Pleasanton neighborhood
on Oct 13, 2009 at 2:15 pm

I don't have a lot of time, but here's a start:
1. I don't see how the supposed evidence refutes the claim, so I can't debate this position.
2.Web Link
Doug Elmendorf, the CBO director, estimated the bill will cost $829 billion over 10 years and will expand insurance coverage to 94 percent of Americans. Most important for fiscal conservatives on the committee, the measure is expected to reduce the overall federal budget deficit by $81 billion over the decade because reforms will cut the cost of health care overall. But in a letter to Sen. Max Baucus (D-Mont.) and Sen. Charles Grassley (R-Iowa), Elmendof cautioned, "those estimates are all subject to substantial uncertainty."
3. Number of scenarios:
Web Link
4.Medicare and Medicare Advantage are different:
Web Link
"People enrolled in (Medicare Advantage) get services that people in traditional care do not get under Medicare," he said. "Insurance companies can afford to cover these services because taxpayer money is subsidizing them. Plans will most likely not offer those extra services, but in no case will [patients] get less Medicare benefits than people in the rest of the program."

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Posted by a reader
a resident of Another Pleasanton neighborhood
on Oct 13, 2009 at 9:17 pm

It is really bizarre to see Republicans like the Heritage Foundation oppose (alleged) cuts in Medicare. So which is it? Are they against socialized medicine or for it?

This is just like the TARP bailouts. Are Republicans for the free market, or against it? What do they stand for? They have no principals.

It must be a strange time to be a Republican.

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Posted by poster boy
a resident of Another Pleasanton neighborhood
on Oct 13, 2009 at 11:17 pm

It's also important to read PWC's sobering statement about their own "sobering" report. It reads:
"The analysis concluded that collectively the four provisions would raise premiums for private health insurance coverage. As the report itself acknowledges, other provisions that are part of health reform proposals were not included in the PwC analysis. The report stated on page 1:
'The reform packages under consideration have other provisions that we have not included in this analysis. We have not estimated the impact of the new subsidies on the net insurance cost to households. Also, if other provisions in health care reform are successful in lowering costs over the long term, those improvements would offset some of the impacts we have estimated.'"

In other words, this sobering report calculated up the total costs of the plan without including the cost savings offsets. This is like taking a handful of coupons to the store, not using any of them, looking at the bill when you get home and claiming that coupons are a waste of time. PwC won't even stand by their own tainted report and are issuing apologies for it.

RE: "The Lewin Group, a highly respected health care policy and management consulting firm"
The Lewin Group is a shadow firm set specifically to put out papers critical of healthcare reform.
"The Lewin Group is a national health care consulting firm based in Falls Church, Virginia, that in 2007 is wholly owned by the health insurance giant UnitedHealth Group. UnitedHealth Group acquired the firm in 2007."..."The Lewin Group has a reputation as the "go to" firm for beleaguered organizations in need of reports and research to support controversial positions and issues. In one example, in 2005 the American Hospital Association hired the Lewin Group to study the causes of skyrocketing health care costs. The study results blamed increased hospital spending on the rising costs of goods, a workforce shortage and greater demand for hospital services, but did not mention health insurance company profits, stock values, shareholder returns, etc. (Aug. 29, 2005, p. 8)."

It's impossible to take anything the Lewin Group says seriously, no matter how "highly respected" they are by the opponents of reform and the defenders of the status quo.

Check out this link for a detailed refutation of every point of the Lewin Group's report, which the Heritage report lifts:

Web Link

This link also has a detailed refutation of the claim reform will harm small businesses.

RE: "There has been no analysis to show that these bills would deliver these promised savings. In fact, mandates in the current bills would have the opposite effect, forcing many individuals to pay more money out-of-pocket, and compelling businesses to reduce wages, salaries, and job opportunities."
If we do NOTHING and leave the current system in place, costs are expected to increase 131% over the next 10 years. This means the cost to a family of four will be 28,000/year/employee. How this won't compel businesses to reduce wages, salaries, and job opportunities is beyond me. This is like a cancer patient being warned not to take chemo cuz they'll go bald. Doing nothing is not an option...

As for the transparency in the bills being debated in congress (issue 1), to claim that they're hiding something or that the final language of the bill is being hidden is a lie. This is the process for almost every single bill that goes through Congress. The details of bills are worked out in committees, then the language of that bill is crafted into the precise legal terminology any bill is written in. You might as well make the same claim that they're hiding something by not providing the full language of a bill to proclaim October 14th wingnut day. (How do we know they're not *really* declaring war on unborn children?!?!?) Spend some time reading up on the legislative process instead of throwing out useless innuendo...

Stay Cool covered the rest.

So I guess the question now is, name one piece of the Heritage foundation cut/paste that *is* true...

Like this comment
Posted by Michael
a resident of Livermore
on Oct 14, 2009 at 6:33 am

I wonder how many packs of cigarettes a day Obama smokes? I wonder if there is way of getting him to smoke more.

Sorry, but further commenting on this topic has been closed.

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