WASHINGTON, D.C. — After squaring off as political foes for more than a year, the Obama administration and the health insurance industry have suddenly discovered that they need each other.
Both have huge stakes in the success of the new health care law. The political fortunes of President Obama and Congressional Democrats depend on their ability to translate its promise into reality for voters, by reining in health costs and making insurance available to everyone at an affordable price.
Likewise, the financial future, indeed the survival, of the health insurance industry depends on the government — on regulations being written by federal officials and on hundreds of billions of dollars in federal subsidies to the insurance companies to cover low- and middle-income people.
Rarely has the federal government gained so much influence over so much of the economy in such a short time.
Friction between administration officials and insurance executives is sure to continue. But to make the law work, people on both sides say, they need to switch from confrontation to collaboration.
Kathleen Sebelius, the secretary of health and human services, predicted ”hand-to-hand combat” with the insurance industry when she addressed the American Hospital Association five weeks ago.
Now, after a meeting with insurance executives last week, she is seeking a public-private partnership to carry out the law. She said she would ”look for opportunities to work with insurance companies while also keeping a close watch to make sure they treat their customers fairly.”
White House officials desperately want to demonstrate that the new law is succeeding, preferably before midterm elections this fall. To fulfill public expectations, they need the cooperation of health insurance companies, the same industry reviled by many Democrats as greedy and amoral.
If insurers do not deliver health care to consumers at a price they can afford, many Democrats will renew their push for a government-run health plan, or public option, to compete with private insurers.
If premiums continue to soar, the administration could blame the industry, as it has in the past. But Republicans could claim vindication for their view that ”ObamaCare” was deeply flawed and would not solve the core problem, the rising cost of health care.
Insurers are trying to develop a new business model. They will be regulated somewhat like a public utility. Starting in 2014, they must accept all applicants and can no longer make money by selecting healthy customers and excluding the sick.
Mr. Obama and his team, which includes at least three former state insurance commissioners, also face a huge challenge: how to regulate and work productively with an industry they profoundly distrust.
Major provisions of the law, including a requirement for most Americans to have insurance, take effect in January 2014.
”You can’t beat up on the health insurance industry for three years and then tell everybody that you have to buy insurance from these guys,” said Robert E. Zirkelbach, a spokesman for America’s Health Insurance Plans, a lobby for the industry.
Carmen L. Balber, director of the Washington office of Consumer Watchdog, a nonprofit advocacy group, said: ”The success of health care reform depends, in part, on the cooperation of the insurance industry. Insurers have endless opportunities to throw up roadblocks. If they try to hold on to the old way of doing business, it will be much harder for the administration to achieve the goal of high-quality, affordable care.”
Insurers will take on millions of new customers when Americans are required to carry insurance in 2014. Until then, buying insurance will remain voluntary under federal law, but consumers will gain many rights in the interim. People with the greatest need for health care are more likely to take advantage of these rights.
Accordingly, insurers see the transition to a new, tightly regulated market as a perilous period. They will be expected, by the administration and by many consumers, to provide additional benefits without significantly increasing premiums.
Insurers will soon be required to offer coverage to children with pre-existing conditions; will have to allow many young adults to stay on their parents’ polices up to age 26; and cannot impose lifetime limits or unreasonable annual limits on coverage of ”essential health benefits,” to be defined by the government.
In addition, new private plans will have to offer free preventive care, without co-payments or deductibles.
Each of these changes could add incrementally to premiums, which already reflect the trend of health costs rising at least 6 percent a year.
Administration officials say they will be closely watching insurance prices and will not hesitate to challenge rate increases they consider unreasonable. And they will soon have a powerful new tool.
Starting next year, the government will require insurers to devote at least 80 percent of every premium dollar to health care (and quality-enhancing activities), rather than administrative costs, profits or brokers’ commissions.
The American Academy of Actuaries, a 16,000-member professional group, said this requirement had the potential to cause ”disruption to consumers in the individual health insurance market.” Some carriers, it said, ”may seek to exit the individual market” out of concern about the impact of the requirement on their existing business and potentially on their solvency.
”Much depends on how the rules are written,” said Cori E. Uccello, a senior fellow at the academy.