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.
They make more money by raising their rates and dropping people from coverage. That's what a Goldman Sachs analyst said last week, too.
JIM LEHRER: Mr. Tuffin?
MIKE TUFFIN: Well, I went -- I went to business school, too. And we knew that...
JIM LEHRER: Did you both do good, do well?
MIKE TUFFIN: I got through.
JIM LEHRER: OK. All right.
MIKE TUFFIN: And "Fortune" magazine is the leading authority in the company on the ranking of industry profits. And we're down at the bottom. And those are the facts.
And what's happening is not companies dropping coverage. It's people being unable to afford coverage in a tough economy. That's absolutely true. And working families, younger and healthier workers, who may think it makes sense to take the risk and go without coverage, in a tough economy, they are -- they are choosing not to pursue coverage.
Small businesses are choosing, can I keep my doors open, or can I afford to cover my work force? And because of spiraling medical costs and a slowing economy, they're caught in a vice.
JIM LEHRER: All right. Let's go -- I don't think we're going to resolve that one right now.
Let's resolve something else. Secretary Sebelius says, you have spent millions and millions of dollars, your industry has, and lobbyists and in ads like the one we just showed, trying to kill health care reform. Is that true? That's true, is it not?
MIKE TUFFIN: It is not true.
JIM LEHRER: Not true.
MIKE TUFFIN: We are trying to make health care reform work.
And, to have it work, it has to be affordable. We are an advocate of reform. We have embraced all the issues people are concerned about related to our sector: preexisting conditions, rating people based on their health status.
We, before this president was inaugurated, embraced doing away with all of that as part of a comprehensive plan that covers all Americans. The problem with the leading proposals is, they're going to actually, unfortunately, make health care more expensive, not more affordable.
Our customers, the people who pay the bill for health care, principally employers, believe this is going to make their cost structure unsustainable. They're having a hard enough time already covering their work forces. And they think this bill is going to make it worse. We need to fix that before this is passed.
JIM LEHRER: But you do, literally, want to kill the Obama proposal? I'm right about that, correct?
MIKE TUFFIN: We want -- well, we want to improve it.
JIM LEHRER: You want to improve it?
MIKE TUFFIN: Right.
JIM LEHRER: All right.
MIKE TUFFIN: Right. We do not think the current proposal...
JIM LEHRER: Works.
MIKE TUFFIN: ... will make health care more affordable.
JIM LEHRER: OK.
MIKE TUFFIN: Absolutely right.
JIM LEHRER: All right.
Now, what's wrong with that, if they have a view on that, Mr. Kirsch? Why can't they express themselves?
RICHARD KIRSCH: Well, they're -- they can certainly express themselves like by laundering, as The National Journal reported, up to $20 million to the Chamber of Commerce to kill reform and we don't know how much more that -- that hasn't been reported.
They have a view that health care reform should be worked to increase their profits. And that's the very simple view of it. They worked to kill a public option, because that would compete with them. There's new proposals from the president to say that there will be a new rate authority to control how much insurance companies can raise their rates. Of course they want to kill that.
There's proposals to limit how much they can spend on profit and administration. They want to kill that. And these concessions they have made on preexisting conditions, they want to keep that to the individual market, not to the employer market, where 170 million people continue to get insurance.
So, their view of improving reform is improving their bottom line, improving their profits. Our view is -- is getting reform done that actually makes good health care affordable to people.
JIM LEHRER: Your point is that they are driven solely by their own situation, not the general condition of health -- health care in the United States?
RICHARD KIRSCH: Well, of course. They're a for-profit industry, and their mandate, their mission, legally, their responsibility to their shareholders, is to increase their profits.
Again, that's why Angela Braly said: We will not sacrifice profitability for membership.
JIM LEHRER: Mr. Tuffin, true?
MIKE TUFFIN: We are in part a for-profit industry. We are also a not-for-profit industry. And people have a choice of for-profit plans and not-for-profit plans all across the country.
And, no, that's not true. We want reform. We want reform that covers everyone. That's what is needed to make these regulations work. But, more than anything, it has to bend the health care cost curve. And the people who pay most of the health care bill in America, our customers, employers, believe this bill will make it harder, not easier, for them to cover their workers.
And we have a responsibility to stand with our employers. We cover almost 200 million people. And every poll shows the American people, by and large, believe this bill -- even people who support the bill believe it's going to make the cost situation worse.
JIM LEHRER: Let me ask you this. I don't know if Mr. Kirsch will -- will agree with this, but a lot of people who -- who take you all on, take on the insurance industry, say, hey, wait a minute, this is going to expand health insurance. There are 37 million people who are going to have health insurance who don't have it now.
And, then, where they are going to get it, they're going to buy it mostly from your companies. So, what's the problem?
MIKE TUFFIN: Well, the problem is -- and we want to serve those people, and we, of course, want to fix the safety net. A lot of those 37 million would be covered by Medicaid as well.
The problem is, the underlying cost structure is unsustainable, and we're on a trajectory in this country that's going to see costs go to such an extent that no one's going to be able to afford it, not the government, not the private sector.
And we don't think this bill bends the health care cost curve.
JIM LEHRER: You don't buy that?
RICHARD KIRSCH: You know, in terms of controlling health care costs, they're saying they can't do it. And they're right. They can't do it. They have failed to do it.
Medicare's cost increases, it's been 4.5 percent. Private insurance, it's been 7.5 percent. That's the average for the last decade. In other words, they do a much worse job than the government of controlling health care costs.
I want to go back to something before, because it's really important. Mike said that the reason that people -- they're losing members, losing people they insure, is because people don't want insurance.
We heard an interesting story from a small business person today, a guy named Dan Sherry from Illinois. His business was growing fast, a small business. He makes trophies. He missed one payment, didn't get the bill out, and the insurance company came back to him and said, we're only going to renew your insurance if we now -- we do medical, your whole medical history.
It turns out, because he has got blood pressure, they won't insure him. Their job is to deny people care when they most need it. That's what their administrative costs are from. That's how they make money.
MIKE TUFFIN: Jim, we spend more per capita in this country on health care than any country in the world, by far. This idea that we're in business to deny care is laughable.
It is -- people in the individual market, there's an assessment of risk on the front end, because people purchase coverage in the individual market when they anticipate needing health care services. Over 90 percent of our business is conducted in what's known as a guarantee-issue environment. You apply, you get insurance. We need to fix the remaining 10 percent.
JIM LEHRER: We're going to leave it there, but not the subject, obviously.
Thank you both very much.