To Insurers Go the Spoils

Score one for the insurers.

President Obama's willingness to drop a government-run plan from his health reform package is a major coup for big insurance companies such as Wellpoint Inc.

The Indianapolis-based company, the nation's largest Blue Cross and Blue Shield plan, stands to lose the most from government competition because it sells a significant amount of coverage directly to individuals in addition to employers.

"Most people would leave private insurance," says John Sheils, vice president of health policy consulting firm the Lewin Group. The firm is owned by insurer UnitedHealth Group Inc.

The White House used the Sunday morning talk shows to signal its openness to compromise on a key component of the president's reform: a public health care option.

"What's important is choice and competition and I'm convinced at the end of the day, the plan will have both of these," Health and Human Services Secretary Kathleen Sebelius told CNN Sunday. A government-run plan is not an "essential element."

The idea of a federal plan to compete with private insurers has been one of the most contentious issues from a business and political perspective. Opponents criticize the idea, saying it amounts to socializing the health care system. Insurers say they don't want to compete with the U.S. government for business.

Plan B for Obama: Create a cooperative of insurers that provide a similar plan to cover the more than 40 million people who currently have no health coverage. Details are being be worked out by lawmakers in Washington.

While potentially better for insurers than the federal-run program, the companies aren't keen on a cooperative that would presumably be backed by the government, either.

"Sounds like Fannie Mae or Freddie Mac," says Robert Zirkelbach, a spokesman for industry lobbing group America's Health Insurance Plans.

The risk for Obama is that his health plan gets watered down to the point that it's not meaningful reform and he alienates liberal Democrats who are vigorously defending the idea. House Democrats said they intend to go forward with the public option.

"We're in the third inning of a long ball game," Zirkelbach says.

Some of the president's key allies were conceding even last week that the public option idea was dying a slow death.

"The public option is an important one but it is not a silver bullet that is going to fix all the ills of health care," Dennis Rivera, the Service Employees International Union point person on health care, said in an interview with Portfolio.com last week.