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AHIP’s Actuarial Acrobatics
Annette B. Ramírez de Arellano, DrPH
After seemingly acquiescing to health reform, America’s Health Insurance Plan (AHIP), the lobbyist of the insurance company, came up with its own “October surprise,” throwing a wrench into the process as the Senate Finance Committee was about to vote on a health reform bill. AHIP’s tool was a commissioned report stating that the bill’s provisions would have an inflationary effect on premiums, adding an estimated $4000 to family policies over the current projections by the year 2019.
The projections were prepared by Pricewaterhouse Coopers, and the company subsequently distanced itself from their own conclusions, stating that they did not assess all the provisions of the bill but only some of them. Because of this selectivity, their model did not take into account some of the measures in the legislation that are designed to control or offset some of its inflationary aspects.
In fairness to Pricewaterhouse Coopers, some of the confusion is intrinsic to all models. A model is a simplified representation of a system at some particular point in time or space. Its accuracy and utility hinges on the accuracy and centrality of the items that go into this representation. Only if all key factors are considered and their impact is correctly gauged, is a model likely to be useful as a predictive tool.
In this case, the model-builders were hired to focus on four components of the proposed bill: insurance market reforms and consumer protections in the absence of “an effective coverage requirement” (i.e., strong mandates); a tax on employer-sponsored high-cost health plans (the so-called “Cadillac plans”); cuts in payment rates in public programs; and new taxes on health care entities. Because all of these measures work in one direction – raising premiums – the results were predictable. The authors of the report were therefore explicit in what they included and in what they left out. In their words,
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 house-holds. 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.
Additionally, the model assumes that the tax on high-end plans will be felt solely on premiums and not trigger other changes in consumer behavior. At the same time, the report contradicts the accuracy of its own assumptions, stating that “although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is applied.”
It is therefore not surprising that they came up with results that satisfied the needs of their client, and that AHIP is using the report to blackmail Congress with their scare tactics.
But in this case, their strategy may backfire. Whatever their intention, AHIP has now made it clear that they are part of the problem, and therefore largely irrelevant to any solution. The report they commissioned makes it evident that they are unwilling and unable to constrain costs, limiting their role to jacking up their premiums and passing increases to consumers. Nor are they in a position to bring about any reforms in how health care is delivered. In 1993, insurers came up with the “Harry and Louise” ads to stop reform; this time around, AHIP has employed wonkier tools to the same end. In the process, though, the lobbyists may have underestimated their audience. To date, their actuarial acrobatics have baffled rather than dazzled.