While no one can argue that President Obama’s oratory skills are usually captivating, his overexposure on various issues is drawing attention not only to his style but, his content as well. As President Obama tried to demonize the private health-insurance industry in his recent address to Congress, a closer look at some of the examples and numbers he used regarding health insurance and health care were not accurate, according to the WSJ.
As a disclaimer, I am personally no fan of the insurance industry, and consider many of their practices appalling, let’s face it they are all about cost, but in sticking to the facts there are perspectives to consider.
The President’s first attack focused on how "More and more Americans pay their premiums, only to discover that their insurance company has dropped their coverage when they get sick, or won't pay the full cost of care. It happens every day." According to one scholar, Scott Harrington, getting dropped from coverage “should never happen to anyone who is in good standing with his insurance company and has abided by the terms of the policy.”
Harrington, who is a professor of health-care management and insurance and risk management at the University of Pennsylvania's Wharton School and an adjunct scholar at the American Enterprise Institute, went on to assert that the “President's examples of people "dropped" by their insurance companies involve the rescission of policies based on misrepresentation or concealment of information in applications for coverage.”
For example, Obama tried to highlight abusive practices, by referring “to an man who "lost his coverage in the middle of chemotherapy because his insurer found he hadn't reported gallstones that he didn't even know about." The President then portrayed this lost coverage as the proximate cause for the delay in his treatment, which the patient then died because of.
According to Harrington, “Although the president has used this example previously, his conclusion is contradicted by the transcript of a June 16 hearing on industry practices before the Subcommittee of Oversight and Investigation of the House Committee on Energy and Commerce.”
The deceased's sister testified that the insurer reinstated her brother's coverage following intervention by the Illinois Attorney General's Office. She testified that her brother received a prescribed stem-cell transplant within the desired three- to four-week "window of opportunity" from "one of the most renowned doctors in the whole world on the specific routine," that the procedure "was extremely successful," and that "it extended his life nearly three and a half years."
Obama’s second attempt at demonizing insurance companies focused on “a Texas woman "about to get a double mastectomy when her insurance company canceled her policy because she forgot to declare a case of acne … and by the time she had her insurance reinstated, her breast cancer more than doubled in size."”
While the woman's testimony at the June 16 hearing “confirmed that her surgery was delayed several months, it also suggests that the dermatologist's chart may have described her skin condition as precancerous, that the insurer also took issue with an apparent failure to disclose an earlier problem with an irregular heartbeat, and that she knowingly underreported her weight on the application.”
So why did the President decide to choose these two cases?
Whether his facts were not straight, or he simply overlooked the research, these two cases were “identified by Congressional staffers' analysis of 116,000 pages of documents from three large health insurers, which identified a total of about 20,000 rescissions from millions of policies issued by the insurers over a five-year period. Company representatives testified that less than one half of one percent of policies were rescinded (less than 0.1% for one of the companies).”
In other words, the examples that Obama used were normal industry business practices, and were not only reasonable, but necessary. As Harrington correctly points out, “Private health insurance cannot function if people buy insurance only after they become seriously ill, or if they knowingly conceal health conditions that might affect their policy.”
As Obama also said in his speech, insurance companies provide a useful service, and employ thousands of people. These “insurers rely in underwriting and pricing on the truthfulness of the information provided by applicants about their health, without conducting a costly investigation of each applicant's health history.” Without such truthfulness, insurers are forced to deny people, and rightfully so because they are forced to “engage in a certain degree of ex post auditing—conducting more detailed and costly reviews of a subset of applications following policy issue—including when expensive treatment is sought soon after a policy is issued.”
While excluding a person for pre-existing conditions is not right, that insurer has to know exactly what they are insuring. Conducting ex post auditing “offers substantial cost savings and lower premiums compared to trying to verify every application before issuing a policy, or simply paying all claims, regardless of the accuracy and completeness of the applicant's disclosure.”
The President also mentioned in his speech how states like , that have 90% of the health-insurance market controlled by one insurer is another reason for reform, and to enhance competition in health insurance. Obama claimed that having such control "makes it easier for insurance companies to treat their customers badly—by cherry-picking the healthiest individuals and trying to drop the sickest; by overcharging small businesses who have no leverage; and by jacking up rates."
Immediately following the speech, “the Birmingham News reported that the state's largest health insurer, the nonprofit Blue Cross and Blue Shield of Alabama, has about a 75% market share. A representative of the company indicated that its "profit" averaged only 0.6% of premiums the past decade, and that its administrative expense ratio is 7% of premiums, the fourth lowest among 39 Blue Cross and Blue Shield plans nationwide.” These numbers were the same in 2007 as well, and Consumer Reports noted that Blue Cross and Blue Shield of ranked second nationally in customer satisfaction among 41 preferred provider organization health plans.
What Obama’s bias forgot to consider is that “the insurer's apparent efficiency may explain its dominance, as opposed to a lack of competition—especially since there are no obvious barriers to entry or expansion in Alabama faced by large national health insurers such as United Healthcare and Aetna.”
These revealing misstatements from the President’s speech last week show many things, and perhaps why Obama is making his last effort to unify politicians on health care reform: not everything is as broken as some believe it to be, and what some people think is unfair, others know are strictly business.
Ultimately, we agree with Mr. Harrington that “responsible reform requires careful analysis of the underlying causes of problems in health insurance and informed debate over the benefits and costs of targeted remedies.” Moreover, any reform enacted needs to applaud insurance companies for their difficult work and not automatically point blame at them for practices that are totally consistent with ethical and business guidelines. Americans and companies need to work together to address insurance problems, and not put all the blame on one side.