HOUSE DEMS ASK FOR HEALTH INSURERS' PAY

Two powerful House Democrats have sent a letter to 52 insurance companies asking them to provide detailed information about pay for top executives from 2003 to 2006, and company-funded conferences and retreats, including amounts paid for “lodging, food, entertainment, or gifts” from January 1, 2007 to the present, as well as information about other business practices. Aetna, Cigna and UnitedHealth Group are among the health insurers that have received letters.

The letter is from Rep. Henry Waxman (D., Calif.), chairman of the House Energy and Commerce Committee, and Rep. Bart Stupak (D., Mich.), head of the panel's Subcommittee on Oversight and Investigations, and sets a deadline of September 14th.

The two congressmen write that they are requesting the information because their committee “is examining executive compensation and other business practices in the health insurance industry.”

Does this letter amount to a fishing expedition with insurance companies as a way to win the health care reform debate, and is it an abuse of power?

Make no mistake—the congressmen are asking for unusually detailed information. The letter comes a month after Administration officials in an unusual move invited Doug Elmendorf, the director of the nonpartisan Congressional Budget Office, to the White House to discuss health care cost cuts with President Barack Obama and about a dozen senior officials. The CBO had issued a report that ran counter to the President's public statements. The CBO said health reform would add, not reduce, government expenditures.

Expect to hear more this fall about health insurer junkets, akin to the Countrywide Financial ski junket where executives were served Kobe beef, and the Wells Fargo Las Vegas junket, since cancelled, also the troubled insurer AIG paid-for junkets, such as corporate retreats to health spas.

AIG received up to $185 bn in taxpayer bailout money, and Wells Fargo received bailout money as well. Countrywide has since been purchased by Bank of America after a stock drop put it on the verge of collapse. The company and its top executive, Angelo Mozilo, face federal investigations into potentially fraudulent lending practices.

And make note that the US taxpayer paid for a Social Security Administration $700,000 retreat for employees at the lavish Arizona Biltmore Resort & Spa in Phoenix. The conference was dubbed the "2009 Management Tango" and included private dance recitals, paid for motivational speakers and an optional trip to the casino.

At a time when Social Security is bankrupt.

Also, House leaders just recently dropped plans to spend $550 mn on lavish Gulfstream jets to fly elected officials around the world on junkets, the Journal reports. House members spent a total of 3,000 days overseas on taxpayer-funded trips, up from 550 in 1995, the paper says.

And recently the watchdog group Judicial Watch obtained emails between House speaker Nancy Pelosi's office and the Pentagon about her travel on military jets. "Any chance of politely querying [Pelosi's team] if they really intend to do all of these or are they just picking every weekend?" one email read. "[T]here's no need to block every weekend 'just in case.'"

Meanwhile, how much do taxpayers pay for health care for government workers? About $15 bn annually for health care coverage for 8.5 mn government workers, including postal workers, that includes a choice of about 10 healthcare plans, as well as several HMOs. Lawmakers can also get special treatment at local DC federal medical facilities, and for a few hundred dollar more a month, access to their own pharmacies and nurses.

Meanwhile, eight out of ten private companies only offer their workers one type of plan.

White House Interference With the CBO

The CBO to date has undercut the Administration’s assertions that health reform would reduce government spending with three negative CBO reports that said it would increase government deficits. The CBO’s Elmendorf had testified that Democratic healthcare reform proposals crafted in the Senate and House would add to long-term government spending on healthcare, an assessment some Democrats have called “devastating.”  

CBO had dropped a bombshell on Democrats in June when it estimated the legislation crafted by the Senate Health, Education, Labor and Pensions (HELP) Committee would add $1 tn to the federal deficit and would reduce the number of uninsured by only 16 mn.

Elmendorf had written on a CBO blog that Obama asked him and other outside experts at the meeting “for our views about achieving cost savings in health reform.”

It is rare for a CBO director to meet with presidents during heated legislative battles, although former CBO director Alice Rivlin, an advisor to the Obama White House, notes she met with presidents Ford and Carter.  

Democrats have suggested Congress drop the CBO’s cost estimates and use projections from the Office of Management and Budget (OMB), which is headed by Peter Orszag, Obama’s chief guru on healthcare economics.

In addition to the president and Elmendorf, present in the meeting were White House heavy hitters, including officials such as Assistant to the President for Legislative Affairs Phil Schiliro, Director of the White House Office of Health Reform Nancy-Ann DeParle, Office of Management and Budget director Peter Orszag (a former CBO director himself), National Economic Council Director Larry Summers, chair of the Council of Economic Advisers Christy Romer, senior adviser David Axelrod, and press secretary Robert Gibbs.

Others were there as well, including Department of Health and Human Services adviser Meena Seshamani, Harvard University economist David Cutler and Alice Rivlin of the Brookings Institute, who was founding director of CBO from 1975-1983.

What the Congressmen Want from the Insurers

The congressmen asks for specific details from the health insurers about executive pay from 2003 to 2006 for officials who earn more than half a million dollars annually, including information about salaries, bonuses, stock options, pensions, perks. The congressmen also want the same info on board members. And the congressmen want documents detailing the compensation models used to arrive at this executive pay, including “performance criteria, incentives, benchmarks, and bonus pay triggers.”

The letter also asks for data on annual sales, net income, and dividend payments from 2003 to 2008, including a breakdown on profit information for all health insurance products the company has sold, the size of their “insured employer market segment,” the “individual market segment,” “government market segments,” including information on their Medicare and Medicaid” segments.

The letter comes in the midst of a campaign by Democrats to portray the insurance companies as the villains of the health-care system. The move could be a back-door arm-twisting measure to remind insurers that opposition to changes to health care could lead to long investigations into the way they do business. 

Clinton Redux

The congressmen’s letter is reminiscent of similar tactics made when the Clinton administration attempted health reform in the early ‘90s.

However, the Clinton administration and Congress back then never asked for details on exec pay and company sponsored conferences as specific as the Waxman-Stupak letter. Instead, the Clinton reform had draft legislation that mandated federal collection of health care information from states, payers and providers, including information such as benefits, premiums, enrollment, claims, and "health care encounters."

Attacks on the insurers by spotlighting their lavish executive pay have picked up in recent weeks, as a recent TV commercial shows.

The TV commercial, paid for by Americans United for Change, a union-sponsored organization that backs health reform, targets executive pay at health insurers.   

The commercial says that: "Ed Hanway, CEO of insurance giant Cigna, makes $12. 2 million a year. That's $5,883 an hour. Ed makes more in one day than the average American makes all year long..Now Ed's retiring with a $73 million golden parachute…

The Republican prescription for the health insurance crisis - be as rich as Ed ... you'll be happy too,'' the ad notes.

What’s Missing?

This is a clear case of the echo chamber becoming the message. A glaring oversight in the media reports on health reform is this whopper: what the government-run insurance option in health reform would cost American taxpayers.

Recently, at a town hall meeting in Portsmouth, N.H., President Obama said: “If you think about it, UPS and FedEx are doing just fine, right?,” despite competition from the US postal service. “It's the post office that's always having problems,” the president added.

Economist Edward Yardeni has noted, however, that the government already runs nearly half of the health care industry through Medicare and Medicaid, which is skewing private health insurance costs higher.

Yardeni notes that:

Federal spending on Medicare combined with Federal and State spending on Medicaid over the 12 months ending July totaled a record $923.5bn;
(2) Medicare totaled $439.9 bn. Federal spending on Medicaid was $241.8bn. To derive the grand total of $923.5 bn, Yardeni and his team doubled the Federal outlay to reflect that Medicaid spending is split roughly evenly between the Federal and State governments, based on government data;
(3) Personal consumption expenditures on health care services and prescription drugs totaled a record $1.8 tn over the 12 months through June;

So the government picked up a record 48.6% of the overall health care tab.

Proponents of ObamaCare repeatedly ask senior citizens if they are happy with Medicare. Not surprisingly, they love it, Yardeni notes, because: “It’s free, and places few restrictions on the services and drugs that are covered by the program. Medicaid works the same way for non-senior citizens who are too poor to pay for health care insurance.”

“So why don’t we all get Medicare?,” Yardeni asks. “Because it is a fraud,” he says.

Yardeni adds: “Ask doctors and hospital administrators about Medicare and Medicaid and they will tell you that it amounts to a theft of their services because the government doesn’t pay them enough to cover their expenses for the care they provide. So they pass those costs on to patients covered by private health insurance,” Yardeni says.

This cost is reflected in the inflation numbers for health care costs.

Medicare outlays per senior citizen totaled a record $11.58 bn during July, up 50% since July 2000, Yardeni says. Over this same period, the consumer price index, or inflation, rose 24.2%, while the CPI for medical care goods and services (covering urban workers) rose 43.9%.

But watch this: the combined consumer- and government-covered health insurance costs, picked up in the personal consumption expenditure deflator index, called the "PCED", was up just 31.5% from July 2000 through June 2009. That compares to the 43.9% rise in CPI overall for medical goods and services.

So medical care prices are rising faster in the overall economy because doctors and hospitals, seeing their low reimbursements under government-covered care, make up for the difference by hitting private insurance with higher costs, Yardeni says. 

Yardeni says that "proponents of more government in health care have the audacity to claim that costs are rising too fast because of waste, inefficiencies, and fraud in the privately-run system!”

Leading Yardeni to ask: “If the government is so deeply involved in the broken health care system now, how can we be sure that more government will fix it rather than make it worse? How much of the waste, inefficiency, and fraud is attributable to the government? Are there really 47 mn people without private health insurance or Medicare? Why wouldn’t people who can’t afford to pay for private health insurance be covered by Medicaid?"

Yardeni concludes: "Do we really need FannieMed? The angry 'mobs' at the town hall meetings don’t think so. Apparently, they are starting to get heard in Washington, DC."

“As P.J. O’Rourke famously said, “If you think health care is expensive now, wait until it’s free,” New York private banker and attorney Frazer Rice notes.

More Costs For Taxpayers

Rice says that “Obama’s plan to pay for health care is a massive undertaking, but the legal costs that burden the system are largely ignored.”

Legal costs that will be put right onto the backs of US taxpayers without tort reform, missing so far in the government's moves to reform health care.

Rice adds that: “The negative effects of our litigious legal system take two major forms: the first problem is defensive medicine (the overuse of costly diagnostic procedures and redundant treatments to manage litigation risk or increase doctor income). Price Waterhouse Cooper’s Health Research Institute estimates that $210 bn is wasted due to defensive medicine. The second problem involves surging medical malpractice premiums due to higher litigation risk and higher workloads.”

Rice says that: “These conditions threaten to drive out whole practice groups. Witness the absence of OB-GYNs in rural and suburban areas and the cost and availability of anesthesiologists. These conditions will drive other desperately needed doctors out of the system as well.”

Rice notes that “government insurance and treatment rationing promise to make the practice of medicine less lucrative. Bright students will choose other career paths. Second, according to the FINAID.org, the average debt load for medical school graduates exceeds $127K and some new doctors have student loan debt in excess of $350K. This is a tremendously expensive hurdle to cross especially if the first three years are spent in lower paying internships and residencies. Third, the expense of medical malpractice insurance is growing.”

Rice adds: "According to the Texas Medical Association, there are a variety of contributing factors to the rising cost of malpractice premiums including the rising cost of health care, inflation, underwriting cycles, lower returns on insurance company investments, lack of reinsurance, the insurance company’s need/desire to limit risk and increased losses on claims." Worth noting is that Texas has one of the most restrictive caps on medical malpractice claims in the country.

Rice says: "In short, it is financially risky to become a doctor now and it will become more so as the government decides what treatments will cost and what doctors should charge. Obama’s plan is to make healthcare more accessible to all.”

TARP for Insurers?

So far, the health insurance industry has not received bailout money from the Troubled Asset Relief Program (TARP), although life insurers have. The Treasury Department has already decided to extend bailout funds to a number of struggling life-insurance companies, helping an industry that is a linchpin of the U.S. financial system.

A number of life insurers, including Hartford Financial Services Group Inc., Genworth Financial Inc. and Lincoln National Corp., struck deals last fall to buy regulated savings and loans so they could call themselves banks and qualify for government funds. Hartford and Lincoln have applied for TARP funds. Genworth said it has applied with the Office of Thrift Supervision to approve its thrift purchase as a step toward gaining access to the federal funds.

Prudential Financial Inc., which owned a thrift before the crisis struck, has also applied for the funds. MetLife Inc., the biggest publicly traded insurer by assets, owned a federally chartered bank before the crisis struck. It has not commented on whether it has applied for TARP money.