This is the story
of the vested interest
that hired the firm
that fronted the study
that skewed the numbers
that spread through the press and
finished off a vital piece of health care reform.

Late last summer in the waning days of the great health care debate, the well-known actuarial firm of Milliman & Robertson released a study asserting that 500,000 New Yorkers had lost their health insurance when a law mandating a practice known as community rating took effect in April 1993. The study also warned that "the additional rate increases needed as a result of what has happened in New York will almost certainly mean additional uninsureds and still higher costs" -- red flags to anyone looking at New York as a model for reform.

Those findings, released by a respected and presumably unbiased and independent source, quickly swept through the media, seeped into the public dialogue, and were anointed as conventional wisdom. Yet the 500,000 figure was the result of an actuarial sleight of hand and not an accurate representation of what really happened. Furthermore, the study that spawned that number was backed by insurance and other interests that had much to gain from disparaging the New York reforms. That crucial detail was missing from the many stories that blithely passed along the notion that community rating in New York had been a failure (see box on page 30).

Aided and abetted by unquestioning press coverage, the study helped kill insurance market reform, the minimalist fallback position that almost everyone believed would ultimately pass.

Even the most sophisticated reporters ran with the study's findings. Edwin Chen, no stranger to the health reform debate, reported in the Los Angeles Times on August 27, "In less than a year, the number of uninsured in New York grew by 500,000 -- predominantly the young and healthy -- while rates went up by as much as 170 percent." The next day The New York Times noted that New York's experience with community rating was "everyone's favorite example of bad incrementalism. . . . Albany's decision . . . led to half a million people dropping their insurance." This story was written by Adam Clymer, a reporter also familiar with the issues. The Minneapolis Star-Tribune reported that "rates went up and 500,000 of the 2.8 million people affected dropped their coverage."

The conclusion that New York's reforms were a failure also traveled through the broadcast media. On CNN's Capital Gang, commentator Mark Shields asserted, "Based upon the New York experience, if they just try to do insurance reform such as portability and pre-existing condition elimination, it's a disaster. It's going to be a disaster." Democratic political consultant Robert Shrum, a guest on the show, then asked, "More people are uncovered?" "That's right," Shields replied. "It's the experience of New York. It really is." On the MacNeil/Lehrer NewsHour Rep. Dick Armey, a Texas Republican known for his support of minimal market-oriented reform, stated, "New York State passed some insurance reform, results in 500 people -- 500 million people dropping their insurance," a preposterous statement that went unchallenged by the NewsHour's Margaret Warner, who not only missed the opportunity to call Armey on his misstatement but to pin him down about the source of the number. CNN's Crossfire weighed in with the same points on three different programs.

My own organization, Consumers Union, cited the study and the 500,000 uninsured in press materials sent to members of Congress and the media to argue against incremental reform. (The report was not mentioned in Consumer Reports.)

A close look at the study reveals that it was nothing more than paid propaganda that furthered the political agenda of its sponsors. Although it was released under the name of Milliman & Robertson, giving the study the stamp of objectivity and respectability, it was actually the work of two Milliman & Robertson actuaries, Mark Litow and Drew Davidoff. In a carefully worded hedge, the report noted that the work represented the "personal opinions" of the authors and "not those of Milliman & Robertson Inc."

Litow, it turns out, is a vice president of the Council for Affordable Health Insurance, a trade association of small and medium-size insurers who support only the barest market-oriented reforms. Those do not include community rating, since it would effectively put an end to the pricing and marketing strategies pursued by some of the group's members. Litow also serves on the group's technical committee and is a co-author of one of its publications, "Mandatory Community Rating: The Most Dangerous Cure for Health Care Woes." In late August, the council helped publicize the Milliman & Robertson report and its damaging statistic in a press release, noting that "this study is the first independent look at the consequences of the 'guaranteed issue' and 'community rating' provisions that were passed by New York's legislature in 1992." Five Milliman & Robertson partners, including Litow, are associate members of the council, and one of the council's full-fledged members, Golden Rule Insurance Company, one of the fir with the most to lose from a community rating system like New York's, is a chief sponsor of the study. In fact, the 500,000 figure apparently made its first public appearance in testimony given by Golden Rule's president, John Whelan, before a House Energy and Commerce subcommittee some two weeks before the Milliman & Robertson report became public on August 18. Whelan was less than candid about the origin of the statistic, simply telling members of Congress: "To date, we understand that more than 500,000 New Yorkers have given up their health insurance protection."

By the same token, Milliman & Robertson didn't reveal the names of Golden Rule and the other lead sponsor, the National Association for the Self-Employed, for nearly two months after the report first surfaced and then only after a strong letter of protest from the New York State Insurance Department. To date, the firm still hasn't released all the sponsors' names. Milliman & Robertson chairman Daniel McCarthy says only that "the total number of sponsors was fewer than ten. I don't know them all," a puzzling remark in light of the Code of Professional Conduct adopted by the American Academy of Actuaries. Precept 6 says "an actuary shall, in communicating professional findings, identify the client or employer for which such findings are made and in what capacity the actuary serves."

The two known sponsors had more than a passing interest in a study that trashed community rating. Golden Rule, a small carrier based in Indianapolis, has carved a profitable niche for itself by refusing to insure sick people. The company is known as a "cherry picker," meaning that it sets strict health requirements for potential policyholders to meet before it will insure them. Although Golden Rule is not licensed to sell policies in New York, federal legislation or other state laws requiring strict community rating would destroy its marketing strategy.

The other lead sponsor, the National Association for the Self-Employed, a trade group with 300,000 members, most of whom employ five or fewer people, opposed the New York reforms. The association endorses group health insurance for its members. Underwriters of this insurance are some of the same companies that belong to the Council for Affordable Health Insurance. In fact, the association had sought an exemption from the law in the belief that its members are healthy or employ mostly healthy workers, and might have to pay more under community rating.

As for the central finding -- that 500,000 people lost coverage -- that figure was derived from an "apples and oranges" comparison. The actuaries used 1992 Current Population Reports from the Bureau of the Census as the basis for their estimates of the number of people insured before reform -- the "apples" -- and actual counts of policies in force, provided by insurance companies, to compute the number insured afterward -- the "oranges." The census bureau numbers represent not only people covered by individual policies but also those who have purchased policies privately through groups unrelated to their employers or unions, say, for instance, through professional or religious organizations. Furthermore, the census data count as insured anyone who was covered during the past year. Policy counts, on the other hand, represent only those who purchased insurance on their own, not through any group. Unlike the census data, policy counts take a snapshot of people who have coverage at any point in time.

In fact, the percentage of people without coverage had remained unchanged in New York after the 1993 reforms. Later, when asked why the actuaries didn't wait for the 1993 census data, McCarthy told a reporter for the industry publication BestWeek L/H that sponsors wanted a timely study for use in the current health reform debate. McCarthy later told me "the census data don't contribute much to the discussion." He argued that the census data would have had to be further analyzed by the Employee Benefit Research Institute, which couldn't complete that work until January 1995. "We felt it was appropriate to do with what we had on hand."

The authors also drew sweeping conclusions about who the 500,000 supposedly uninsured people were, asserting, "we believe that most of the insureds leaving the market are the young and healthy. It would appear that these people are not willing to accept significant rate increases to pay for the health care of others" -- points often reiterated in the press. Nevertheless, the authors offered no evidence beyond their "belief" to support those assertions and not so much as a hint that this group was, in fact, the prime market for policies sold by Golden Rule and other carriers.

At the very least, reporters should have questioned the data. But they should also have looked more critically at several other clues scattered throughout the report that could have been used to challenge the study and develop a more accurate and complete picture of community rating in New York. Public debate would have been better served.

Page three of the report, for example, noted that the analysis "was commissioned by a number of organizations, including both small business and insurance carriers," and that the "results do not represent the input or opinions of any of the organizations which provided financial support," an acknowledgment that somebody paid for the study. Reporters should have asked who. McCarthy told me: "You are the first person who asked me about it other than the [New York State Insurance] Department." Without knowledge of who actually funded the study, the public was deprived of information needed to evaluate the validity of the claims it made.

The report contained two pages of limitations and hedges. The authors say, for example, "estimates in this study reflect our best estimates of anticipated events. Actual results may vary from our best estimates." Throughout the report are such phrases as "actual experience to analyze the true impact is not available" or "we have no actual data before reform to confirm this assumption" -- disclaimers that should have prompted greater skepticism. The report also admitted that the data used had not been audited -- a signal that perhaps the conclusions were not exactly as black and white as they seemed. In other words, data errors could "significantly impact these results," the report warned. The authors were careful to say that portions should not be excerpted and the report should be used in its entirety, a clear indication that the disclaimers were crucial. And an alert reporter could have picked up on the authors' speculation that some of the 500,000 people who supposedly dropped their policies might have founother coverage in neighboring states or from large or small employers. If that were the case, then the number of people without insurance would clearly be less than 500,000.

The one-sidedness of the conclusions should have prompted reporters to call the New York State Insurance Department for its thoughts on the matter. But from August 18 until the end of the month, the time when the 500,000 statistic got its widest circulation, only three media outlets -- The Bureau of National Affairs, American Medical News, and The Washington Post, whose reporter Spencer Rich had been working on a community rating story for several weeks -- called the department.

Earlier in the year the department had issued its own verdict on community rating: the number of uninsured had gone up by only some 25,000. It attributed part of that rise to a hefty 25 percent rate increase by Empire Blue Cross (which had always used community rating and was unaffected by the reforms) and negative publicity surrounding the carrier's business practices. The department also found that community rating had provided greater rate stability and greater access to insurance, but for some "vulnerable" individuals, affordability of coverage remained a problem. It recommended that the legislature enact additional reforms to make coverage more affordable. A department internal memorandum "re-emphasized" that reform "did not cause any significant writer of health insurance in the state to leave the market" as some had threatened to do. The memo went on, "the small group market has been so competitive in the past year that some commercial insurers have re-filed for decreases in their originally filed comnity rates." None of these latter points appeared in any of the first wave of stories after the release of the Milliman & Robertson report. Earlier in the year, a few publications, including The Wall Street Journal and the Los Angeles Times, mentioned the department's estimates of the number of people losing coverage in negative stories about community rating. The New York Times, while not mentioning the decline, gave a more complete picture of the issue.

In mid-September, the New York State Insurance Department fought back with a ferocity unusual for a state regulator more accustomed to protecting the insurance industry than attacking it. The department issued a press release rebuking Milliman & Robertson and in a letter to McCarthy asked the firm to publicly withdraw the report. It called the notion of failure "the big insurance lie of 1994," and contacted some forty-two media organizations. Only six showed any interest -- The Associated Press, the Schenectady Daily Gazette, the National Underwriter, International Medical News Group, The Legislative Gazette, and The Washington Post. Wayne Cotter, director of research for the department, says some organizations told him that since they didn't cover the release of the report, they saw no reason to weigh in with the department's rebuttal -- a stance that might at first glance seem reasonable but one that resulted in a missed opportunity for a good story and a chance to promote a useful dialogue.

The next crop of stories moved a bit closer to revealing the sponsors and the behind-the-scenes interests, now referring to them as a "business and insurance" group or noting that the study was "industry commissioned." They also gave the New York State Insurance Department a chance to air its side. The Washington Post pointed out the conflict between the department's estimates of those dropping coverage and Milliman & Robertson's numbers. But then the Post used a horror story of a young man whose monthly premiums increased from $27 to $102, without reporting a similar anecdote about someone whose premiums decreased. The story did allow the New York Superintendent of Insurance to summarize the law's accomplishments, and quoted McCarthy as saying that the 500,000 drop is "fundamentally correct." McCarthy also acknowledged that "some part of the 500,000 could be due to other factors than the reform -- we don't know the exact number." This was the firm's first sign of retreat. The AP ran a story citing the 500,000 statistic, but quoted the insurance department as saying the study was "flawed." It also quoted Senator Phil Gramm, Republican of Texas, as saying that insurance rates shot up by as much as 170 percent for thirty-year-old males -- a statistic that was misleading since it reflected only one rate for one age group from one company. The number, quoted by other publications as well, came from the New York State Insurance Department, which also noted at the ti that 40 percent of the people affected by the community rating law had seen their rates decrease. Only 5 percent, or about 2,400 individuals, had seen their rates increase by more than 100 percent.

In mid-October, the census bureau released 1993 data showing that the percentage of New Yorkers who were uninsured had not changed from 1992, the year before reforms took effect. Approximately 13.9 percent of the population had no insurance coverage in 1992 and in 1993, a leveling-off of an upward trend in New York, as well as nationally. Indeed, census bureau data showed that the percentage of uninsured increased, sometimes significantly, in twenty-seven other states. The insurance department issued another press release to publicize this finding. Again there were few takers. About the same time Milliman & Robertson issued a "clarification." In it, the firm, which had earlier admitted in a letter to the insurance department that it overcounted the number of people who had individual coverage before reform by about 265,000, now confessed that one data source it used was "materially incorrect." The clarification, which released the names of the two lead sponsors, said that now the "authors' best estimate" of e number of people losing coverage in the individual and small-group market was 405,000, but that there could be an error of 100,000 in either direction, perhaps even more. Milliman & Robertson also charged that the report had been used "out of context." Later Peter Cullum, vice president of Donley Communications, which represents the firm, said "there are a lot of errors in the coverage."

The last batch of stories still didn't reveal the sponsors. The Schenectady Daily Gazette, however, did give a good presentation of the new census data and other aspects of Milliman & Robertson's clarification, but the paper hardly has national impact. Newsday ran a piece grudgingly conceding that the New York State Insurance Department may have had a point all along. The writer, Dena Bunis, a veteran of the health reform beat, simply called the Milliman & Robertson report an "often-quoted private consulting firm study." (BestWeek L/H did identify the sponsors.)

In the meantime, community rating has helped to create a competitive market in New York, resulting in a significant number of filings for rate decreases by insurance carriers and HMOs. For its part, a Milliman & Robertson spokesman says "the position of the firm is they are standing behind the report as clarified." As for the press, it can expect increasing bombardment by such propaganda studies bought and paid for by groups that want to surreptitiously influence public discourse.

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