This new Motley Fool series examines things that just
aren't right in the world of finance and investing. Here's
what's got us riled today. If something's bugging you, too
-- and we suspect it is -- go ahead and unload in the
comments section below.
Today's subject: One day before a critical
vote was to occur in the Senate committee on health-care
insurance reform legislation, PricewaterhouseCoopers released
a report warning of increased family premiums and an overall
increase in health-care costs if comprehensive health-care
legislation was passed. The report, paid for by the industry
trade group America's Health Insurance Plans (AHIP), is
intended for circulation on Capitol Hill and will also be
promoted in new advertisements. Karen Ignagni, AHIP's
President and CEO, said "between 2010 and 2019 the cumulative
increases in the cost of a typical family policy under this
reform proposal will be approximately $20,700 more than it
would be under the current system."
This all comes out despite a report released last week by
the nonpartisan Congressional Budget Office (CBO) stating
that the legislation in question would reduce the federal
deficit by $81 million by 2019 and would probably extend
coverage to about 29 million Americans who currently lack
insurance.
Why you should be indignant: Where to begin?
There are at least three very good reasons to be apprehensive
of PwC's report.
Aetna (NYSE:AET),
Aflac (NYSE:AFL), and
Humana (NYSE:HUM), PwC should have been
extra careful to dispel any apparent conflicts of interest.
However, instead of performing tremendous due diligence,
PwC seemed to have produced a report with too many holes to
poke through and too much room left to be guessing about
the legitimacy of their work.
It is possible that PwC was not aware when AHIP was
going to release their report. However, the fact that it
was unveiled one day before a critical Senate committee
vote seems to be suspicious at best, and politically
motivated at worst. Officials of the Obama administration
questioned the timing and authorship of the report.
John Gruber, a health-care economist at the
Massachusetts Institute of Technology, said he evaluated
the report the day after its release and found it deeply
flawed. Among the problems with PwC's analysis, Gruber
highlighted:
a. The report fails to take into account
administrative overhead costs that he said will "fall
enormously" once insurance policies are sold through new
government-regulated exchanges.
b. It also fails to consider government subsidies
that would be provided to help moderate-income American's
purchase insurance.
c. It reaches the opposite conclusion as Gruber, who
says that premiums would actually decline for individuals
and families purchasing insurance, with or without
government subsidies.
The bottom line: Gruber says "If you literally take the
data from the CBO, you can see that individuals will be
saving money in a nongroup market."
What now? Well, you can choose to believe
PwC's report, or you can choose not to. Before you reach any
conclusion, consider this: In the early 1990s, PwC performed
similar studies for the tobacco industry, which included
bigwigs like
Phillip Morris International (NYSE:PM) (then
part of
Altria ) and
Reynolds American (NYSE:RAI). They provided
supposedly hard data that showed how a new excise tax on
tobacco would destroy hundreds of thousands of jobs.
The report was apparently so lopsided that another
consulting firm, Arthur Andersen, reviewed PwC's work. They
found "serious methodological problems and errors of omission
(one-sided analyses likely to lead to misinterpretation) in
both the PW Report and the [tobacco industry's Tobacco
Institute] Estimates." Ultimately, the string of blunders
made by PwC led Andersen to report that "these and other
serious flaws in the Price Waterhouse Report and the Tobacco
Institute Estimates build upon one another in a cumulative
fashion to present grossly exaggerated and misleading
estimates of job loss from an increase in the federal excise
tax on tobacco products."
There are some eerie similarities here considering that
one of the methods considered for funding health-care reform
is a tax on some very expensive "Cadillac" health-care plans.
Looks to me like another case of lobbyists hiring consulting
groups to find data that supports their claims instead of
performing a comprehensive, objective analysis.
This report has conflict of interest written all over it.
Ill-timed. Factually debatable. Contrary to reports by the
CBO. I'm not buying one word of it.
Put aside the crazy town hall meeting thoughts on
health-care reform for one moment and let me know -- what do
you think about the PwC health insurance industry report?
This article was originally published as
The Daily Walk of Shame: "Unbiased" Health-Care Reporton
Fool.com
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