Report: Insurers enjoy record-breaking profits as they cut 2.7 million people from their rolls
Posted on February 11th, 2010 by Jason Rosenbaum in Profits Before People
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Health Care for America Now has a new report out today on the insurance industry's profits and customer base [pdf] and the statistics are shocking:
The five largest U.S. health insurance companies sailed through the worst economic downturn since the Great Depression to set new industry profit records in 2009, a feat accomplished by leaving behind 2.7 million americans who had been inprivate health plans. For customers who kept their benefits, the insurers raised rates and cost-sharing,and cut the share of premiums spent on medical care. Executives and shareholders of the five biggest for-profit health insurers, UnitedHealthGroup inc., WellPoint inc., Aetna Inc., Humana Inc., and Cigna Corp., enjoyed combined profit of $12.2 billion in 2009, up 56 percent from the previous year. It was the best year ever for Big Insurance.
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The 2009 financial reports from the nation’s five largest insurance companies reveal that:
- The firms made $12.2 billion, an increase of $4.4 billion, or 56 percent, from 2008.
- Four out of the five companies saw earnings increases, with CIGNA’s profits jumping 346 percent.
- The companies provided private insurance coverage to 2.7 million fewer people than the year before.
- Four out of the five companies insured fewer people through private coverage. UnitedHealth alone insured 1.7 million fewer people through employer-based or individual coverage.
- All but one of the five companies increased the number of people they covered through public insurance programs (Medicaid, CHIP and Medicare). UnitedHealth added 680,000 people in public plans.
- The proportion of premium dollars spent on health care expenses went down for three of the five firms, with higher proportions going to administrative expenses and profits.
The numbers may be shocking, but they shouldn't be surprising. This is how the industry makes money, by charging people more and cutting the unprofitable people from their rolls. In fact, the one company who's profit margin went down slightly this year - Aetna - was also the only company to add more customers to its rolls in 2009.
But the industry will go to any length to "justify" their profits and their policies of dropping their sick or expensive customers.
First, they'll claim that the cost of medical care is going up, and so they need to raise prices, but it's simply not true. As Congresswoman Rose DeLaura (D-CT) pointed out on a call with reporters announcing this report:
They'll say the increases are justified because medical care is going up, and they'll hide behind their actuaries to explain their rate increases. But this is coming from the same people who've been saying health insurance reform will increase costs. They can't have it both ways.
She's absolutely right. Insurance costs are skyrocketing now. Double-digit rate increases like those announced from Anthem in California have been common for years, and will continue to be "commonplace" if we don't reform our health care system, according to Richard Kirsch, Health Care for America Now's National Campaign Director. And yet, while raising their rates, insurers claim health reform will increase prices. It seems there's only one way prices can go in according to the insurance industry - up.
Next, insurers will also claim that these profits aren't out of the ordinary. As Andrew Kurz, former chief financial officer of Wisconsin Blue Cross-Blue Shield, explained, they are:
Insurers claim profit margins are only a slim 3-5%. But with competition, you have to carefully price products. Insurers don't have to do that, they just raise rates on their most expensive customers. Even if insurers earn less money one year, they can raise prices the next to make up for it. And they can raise profits in concert with other insurance companies because they have anti-trust exemptions.
Insurance company profit margins put the industry in the top 10% of all industries, up there with cigarette manufacturers. Insurers price their products like a discretionary luxury, not something essential for health and well-being.
Finally, insurers will - perversely - try and blame the economy for their record-breaking fortunes, saying employers have been shedding jobs and therefor dropping insurance coverage, leading to a decrease in customers. And they're certainly right in the sense that less jobs equals less employer-based health coverage, but that obscures the fact that employers have been steadily dropping health coverage for more employees for 15 years - even during good times - because the insurance industry's prices keep skyrocketing much faster than inflation.
None of the excuses can explain away the basic reality that insurers make more money when they insure less people. They can pay their CEOs more ("administrative costs" rose this year) when they can charge the healthy exorbitant prices and drop or deny these loyal customers when they become sick and therefore expensive. Until we change that basic incentive structure, these Wall Street-run corporations will continue to operate in exactly the same way.
This is what health care reform is, in part, designed to change. Regulations on how much insurers must spend on medical care as opposed to profits and CEO pay will give consumers fair value for their premium dollars. Rules regarding rate increases will eliminate price gouging. Competition within the exchange (with a public option in the mix) and elimination of the insurance industry's anti-trust exemption will force these companies to price their products within reach of their customers.
As Congressman DeLauro said this morning, "Despite [the insurance industry's] best efforts, we passed a bill in the House and Senate, and we need to press forward to have health insurance reform to provide economic security to American families."
Mr. Rosenbaum,
I read with interest and some dismay your blog on increasing profits for the health insurers and your polemic about dropping people from the rolls and increasing premiums while reducing benefits. It fits a neat little scenario to blame insurers for all of our health care ills, but your perspective is so warped by your dislike of insurers that you miss the bigger picture and fail to understand all of the causes of uninsurance, high rates and reduced coverage.
I want to say up front that I am not an insurance company supporter in any way. Insurers do bad things just like other companies. But when you write this absurd and narrow screed you do not inform the debate nor it is clear do you understand the underlying causes of our health care malaise.
To begin, high costs, poor quality and high uninsurance rates have multiple causes. Government, providers, Pharma, employers, consumers and yes, insurers collectively are to blame for the mess we're in. To provide one example of who's to blame for increasing premiums–insurers are often simply passing on the underlying increases negotiated by hospitals, large physician groups and pharmacy companies. The rates of increase for providers have been 6-7 percent, year after year. Insurers pass these costs along to employers, consumers and the government. Employers are the ones most responsible fo reductions in benefits because they can't afford richer benefits as a result of provider increases.
In addition, pharmacy companies and equipment manufacturers like GE and Siemens are constantly developing new drugs and devices that cost more and more. Today, it is not uncommon to see 5-10 percent of total costs of a health plan consumed by a tiny number of patients who are taking incredibly expensive drugs. Those drugs are approved by the FDA and health plans are legally obligated to cover them, even if the marginal improvement in health is slight. Those costs are passed along to your and I. It may be convenient to blame the insurer for this but it would be wrong.
In a system that is made up of a huge number of varied interests all responsible in their own way for the high cost of care and the uninsured, it is simply wrong to blame a single party. In point of fact, the laws of each state and the nation force insurers to medically underwrite and refuse to cover all comers. Without a mandate or a national health plan, no insurer could remain in business if it didn't exclude people from its coverage. That's not the fault of the insurer–it's the fault of our government and our collective will.
I am solidy for a single payer system. This would end the crazy and immoral system (which is no system at all) that allows all of the parties in health care to reap windfalls from illness. Blaiming insurers is irresponsible and frankly just wrong. Stop it. It doesn't help.
Steve
I don't deny at all that there are multiple reasons for high costs, simply pointing out insurers are one of them.
Jason,
HCAN would be much more credible - and effective - if you addressed the greed of pharma, docs, hospitals, and device companies, in addition to insurers.
I agree with Steve - your current insurer-only strategy makes HCAN look like it doesn't understand the complexity of our health care system's ills.
I"m unsure where you get "insurer-only." We're in favor of a bill that takes on a lot of aspects of our broken health care system.
Jason-
I stand corrected. Can you point me to HCAN's work addressing outrageous drug prices or over- utilization/wasteful practices by doctors and hospitals? Or how about the profits of drugs companies?
Thanks.
It's all part of our principles:
http://healthcareforamericanow.org/site/content/about_us/
With all due respect, your principles don't address any of these issues.
How so?
Mr. Williams,
You are drawing me into the heavy question: how come that Americans have to pay so much more for less or (in the case of preexisting conditions e.g. after being raped) for nothing.
All the costs you listed, are not exceptional or exclusive for the USA except the practice and handling of American assurance companies. We share the same pharmaceutical industry and innovative instruments. Philips is a company from my country, the Netherlands, Siemens is German. BASF and other large pharmaceutical corporations are also from Europe and they all operate worldwide in the medical field with the same products. American goods, that we use are cheaper abroad? I don't believe that and government, consumers and employers have nothing to do with higher costs. They are on the other side of the table.
So why has the American citizen to pay 8-12 times as much as citizens of the western civilized world for less or nothing?
The American health care is, as you well need to know, ranking in quality behind Slovenia (a former East-block country) and that's a damned shame for America.
One other thing must be said. Our taxes are higher and some money of that goes to Hospitals and Medic Centers of the Universities, so perhaps that's why the costs of the providers are somewhat lower than it can be in the States.
But that can't be the central source of the problems.
Unlimited greed is the central source of your problems.
You have to fight that greed and I wish good luck with that.
There are many reasons why US Healthcare is so high. Yes, the insurance companies make large profits but that is not the only reason. When a patient is admitted to our hospital system, just about every test that can be done will be done whether it is beneficial to the patient or not. In Europe and other countries there are long lines, for these tests such as MRIs or certain elective surgeries. We dont blink an eye at offering them to just about every patient. There is a lot of waste and one of the reasons that the costs are so high is because of the high rate of the uninsured. How does the uninsured get care if they have no primary care doctor when they get sick? Well, they go to the ER. This is the most expensive route one could take. I have a friend that went to the ER last week for a severe bladder infection and was there for 4 hours and received a couple of lab tests, antibiotics, and fluids and here bill was a whopping $8,000. Now, was this really necessary? With better education, she would have gone to her primary care doctor before it got so bad for much much cheaper!!
I went for a checkup yesterday. My co-pay was 20 bucks. I needed bloodwork. Theres a 65 dollar co-pay. Then to the drug store. 3 perscriptions with a 120 bucks in additional co-pays. That's 3 drugs I need which WITHOUT insurance the cost would exceed 400 dollars. I am on medical leave and I'll probably not return to work within the year and my BCBS expires in September.
Way to go Mr. President. And don't hand me this 'socialism' and 'best medicine in the world ' crap because its a lie.
I don't mind paying for it- I need something I can afford.
And by the way - the Big 5 healthcare providers made 12 billion IN PROFITS last year and arbitrarily CUT the number insured.
Hand me a hanky, would you?
I'm not sure why you're angry at the President, but yes, affordable is what we're trying to achieve.
The data you cited highlight an important issue - that putting public health care in the hands of private companies is the worst thing we can do. The report shows that insurance companies are making more money by dropping privately covered members and INCREASING the number of people they insure through public programs. This wedding of for-profit insurance companies and tax-funded public programs simply funnels tax dollars directly into the coffers of the corporations.
This is why the current health care bill cannot be made law. It will simply give the insurance companies access to everyone's tax dollars instead of only some people's.
The innumerable concessions that have already been made to the private sector are evidence that, if this bill passes, no hope remains of keeping more and more tax revenue from cascading into the insurance companies bank accounts.
Public health care needs to be exactly that - public. In any admixture with the private sector, it will be wholly usurped.
So, unless you feel like subsidizing Wellpoint and Humana, don't attempt to compromise with corporations- you'll only compromise your ideals.
What you need in the Health Care Reform to bring the costs down is a public option. Otherwise, by the current practices of the corporations, it is a financial economic gang bang. It's perverse. It's rape.
Starting from scratch (Boehner) is not a bad idea if it will be starting to scratch away the Republican distortions of a healthy plan.
Believe me, that I, 69 years old and living in the Netherlands, have to pay €135 a month to be fully covered without any costs to pay when I need care, cure and/or medicines and the WHO ranks our medical practice of much higher quality than it is in the USA. That's not a public option, but a private company (Menzis).
The years of the public option lay behind us and it was good. The assurers became mature and competitive. That is the first phase you need by now, 70 years later, but it can't happen that you don't need it to educate and lead the assurance companies in the right direction. If they can't handle that like their colleagues in the civilized world, well, bey bey, let them fail and disappear.
While health is wealth most of our people no good health and it is the reality that they have no wealth to keep health well. To keep good health we also need wealth. Health is wealth? Not always that!
I am very glad to see this post. As a physician who had to close her private practice for teens & young adults in 2008 due to cash flow problems caused by poor insurance payments that worsened during 2007-08 (yes, right before the presidential election when healthcare reform was being debated!), I can tell you from personal experience that physicians are NOT being paid more for our services!! In fact, our claims that were being submitted timely were often ignored, denied for illogical reasons, or underpaid substantially while we heard one excuse after another from the insurance companies as to why they weren't paying the claims. When I first opened the practice in 2003, it was just a matter of learning how to code and bill properly in order to get paid. During 2007-08 not only did the average payment per CPT code decrease substantially, but the companies were unjustly denying payment in such erratic ways that it was impossible to even predict our income based on the number of patients we saw per month. In short, after I obtained legal advice, I (as the owner and employer of 5 people) was compelled against my will to close the practice and file Chapter 7 bankruptcy. Did my patients deserve this?? Absolutely not, and neither did I or my employees. We simply weren't being paid for the work we had already done, and could not trust that the problems would ever be resolved– and I am glad to see that someone else finally "gets it" when it comes to what's going on in the healthcare sector with the insurance companies. Most doctors aren't even aware of what the companies are doing because they don't usually watch their billing and collection processes as closely as I did. My practice had virtually no competition in my region; was busy with referrals coming in from other physicians and patients themselves because they liked how we treated them; and was booked out for months in advance when I had to sadly inform everyone of the tough decision to close. My patients were gladly paying their co-pays for the most part, but this was not enough to keep our overhead paid (although I worked without a steady salary myself). We cut the overhead as much as we could, but we still had to have the employees to help handle patients' concerns as well as argue with the insurance companies about referrals, prior authorizations, etc.! Since filing Chapter 7, I've not been able to obtain another business loan to help me with my current downsized, private-pay-only practice; rather, I've had to operate on a very small scale and cut back substantially on expenses. I no longer have any employees or offer the number of services I used to–because I can't afford to. No, I don't think the executives of the insurance companies truly care about health "care," or they wouldn't put so many of us physicians, especially those of us in small practices, out of business. Athena Health's website has some interesting stats on the DECLINE of average reimbursements to healthcare providers in the United States over the past several years, and it has only worsened as time goes on. Their stats also rank the insurance companies based on the ease (or lack thereof) with which they pay claims, how long it takes them to pay, etc. Many of them look very bad indeed. So–don't blame the physicians for being paid huge amounts when it comes to the rising costs of healthcare! Many of us have already gone or are in the process of going out-of-business or have had to "re-invent" ourselves if we still want to care for patients.
I decided that since I had to lose my dream practice because not getting paid, despite doing everything right with the billing and collection processes, I would tell as many people as possible what the insurance companies are doing–because so many people are completely blind to how they're destroying physician-patient relationships and healthcare practices.
After working in the health care field for almost twenty years, and witnessing first hand how uninsured and under-insured patients received little or no treatment at all, it is obvious to most people that without a public option health insurance reform will not work. These patients (including members of my own family) would have insurance if they could afford it!
Why we can't allow the working poor to enroll in Medicaid for a reasonable premium and early retirees to enroll in Medicare is not clear to me. There would be an infusion of money and a healthier segment of society into a beaurocracy that already exists.
If there is a major flaw in my reasoning, please point it out.
Either Congress doesn't get it, or I don't.
The report shows that insurance companies are making more money by dropping privately covered members and INCREASING the number of people they insure through public programs.
Another way that I've seen insurance companies save money and boost profits is when the state-level commissioners shoot down appeals of coverage denials, in contradiction to the very policies contained in the benefits coverage plans. For example, in Massachusetts our state commissioner for the Group Insurance Commission Delores Mitchell sides with the insurance companies in denying patient appeals to her office, which oversees WellPoint's subsidiary Unicare. Unfortunately, not all states have commissioners like Steve Poizner of california who defends the public he represents, not the industry he regulates.
Excellent post, Mr. R., and air-raising.