Insurer Representative & Reform Advocate Debate

By The NewsHour, The NewsHour - March 10, 2010

JIM LEHRER: President Obama had more words today for the health insurance industry. It came in a pro-health reform speech he delivered in Saint Louis.

Earlier in the day, in Washington, his health and human services secretary, Kathleen Sebelius, delivered her own message to a meeting of insurance executives.

KATHLEEN SEBELIUS, U.S. health and human services secretary: The trend line for the health insurance system is as unsustainable as the trend line is for American consumers.

And, yet, over the last year, we have seen tens of millions of dollars by the insurance industry spent on ads and lobbyists to help kill health reform. I am hopeful that you will take the assets that you have and the influence and the bully pulpit that you have and use it to start calling for comprehensive reform to pass.

JIM LEHRER: The industry's trade group, America's Health Insurance Plans, released a new ad today.

NARRATOR: What's inside the health care cost pie? Some in Washington say it's all health insurance.

But health insurance is one of the smallest slices. Health insurance companies' costs are only 4 percent of all health care spending. Doctors, hospitals, medicines, and tests are the biggest slices, and a government report says their rising prices are a primary driver of higher health care costs. If Washington wants to make health care more affordable, they need to look at the whole health care pie, not just a slice.

JIM LEHRER: And here now is Mike Tuffin, executive vice president of the association behind that ad, and Richard Kirsch, a leading advocate of the Obama push for health care reform. He's with the Health Care for America Now organization, which helped organize a rally against the insurance industry in Washington this week.

Mr. Tuffin, so, a small slice of the total cost, and, thus, not worth the trouble and the -- and the attack that the presidents and others are making on you all?

MIKE TUFFIN, executive vice president, America's Health Insurance Plans: Well, a small slice of our total health care spending. About 4 percent of what we spend in health care in this country goes to our administrative costs and profits.

And it's entirely appropriate to direct scrutiny at us and to ask us to be more efficient and do a better job, but we need to look at the other 96 cents, too. And what we're seeing from Washington is a laser-like focus entirely on one slice of the pie. And, if we want to make health care affordable in this country, we have to look at the whole piece of pie.

JIM LEHRER: Mr. Kirsch, does the insurance industry slice deserve the attention it's getting?

RICHARD KIRSCH, national campaign manager, Health Care for America Now: It certainly does, Jim. That 4 percent adds up to about $100 billion a year. And we have seen...

JIM LEHRER: One hundred billion dollars in what way? What...

RICHARD KIRSCH: One hundred billion dollars a year, that is what it costs.

In other words, 4 percent of health care is about $100 billion a year, right, of what we're spending in the country.

JIM LEHRER: OK. OK. I got you.

RICHARD KIRSCH: And we have seen -- excuse me -- health care premiums are doubling, where medical inflation has gone up 40 percent in the last eight years, so premiums are going up two-and-a-half times medical inflation.

But a key point here is how much of our premiums are actually going to medical costs. In 1993, 95 percent of our premiums went to medical costs. Now it's down to 83 percent, a huge drop. Where is the extra money going to? Profits, record profits last year, CEO salaries, more than $700 million in the last decade, and administrative costs, a lot of administrative costs to deny people the care they need.

So, yes, this is -- it needs a lot of scrutiny.

JIM LEHRER: Mr. Tuffin?

MIKE TUFFIN: Well, according to the secretary's own department, HHS, the share of premium going to administrative costs and profits of health insurers has declined for six years in a row.

What is causing health care to be unaffordable is spiraling medical costs, doctors, hospitals, new technologies that come online, new drugs. The bulk of people's premiums go to pay for those services. And the share, again, going to administrative costs and profits of our companies is actually declining.

JIM LEHRER: But is it not a fact that -- that the premiums are going up? And aren't -- I thought the records -- the recent reports showed that profits are up in your -- in your major health insurance companies?

MIKE TUFFIN: In the past year they were up. In 2008, according to "Fortune" magazine, our city profits were 2.2 percent, one of perhaps the smallest of all health care stakeholders, and very near the bottom of the list of the industries "Fortune" tracks.

Last year, they were about 3.5 percent. So, that's a 50 percent increase from about 2.5 percent to 3.5 percent. Meanwhile, other sectors in health care have margins of 15 percent, 20 percent, 25 percent. So, if profits in health care are the problem, you're not looking at the right place.

JIM LEHRER: Not looking at the right place?

RICHARD KIRSCH: Absolutely, we are looking at the right place.

And I went to business school, and he's talking about return on sales. And if I tried to use that in my finance class, I would have gotten an F. What shareholders look at is return on equity under investment. And for the health insurance industry, it was 16 percent. That's higher than cable TV. It's higher than cell phones. It's higher than beer.

And the five biggest health insurance companies, record profits last year, 21 percent return in equity. That's bigger than any part of the health insurance industry, except for the drug companies, record profits.

But the thing about is, how do they make the profits? They dropped 2.7 billion people -- 2.7 million people from insurance rolls. And Angela Braly, the CEO of WellPoint, the biggest insurance company, said: We will not sacrifice profitability for membership.

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