By Ethan Rome - Executive Director, Health Care for America Now
Insurers, awash in billions of dollars in record profits and excess capital, should give consumers their money back
The health insurance industry continues reporting record-setting profits while socking consumers with unjustified and excessive rate hikes. Today, Health Care for America Now (HCAN) called on the Wall Street-run health care profit machines to accelerate the consumer rebates required by the Affordable Care Act and immediately give back billions in premium overcharges to families and businesses.
Year after year insurance companies have imposed double-digit premium hikes on America's families and businesses to pay for their excessive profits and financial shell games.
The insurance companies say that their premiums reflect costs, but that's simply not true. Rates have gone up by an astounding 131% since 1999. That's twice the rate of medical inflation. It's also three times greater than wage growth, and it's busting family budgets and employer balance sheets.
Fortunately the Affordable Care Act is changing things. Under a consumer protection provision in the new law, the Health and Human Services Department estimates that insurers will owe up to 9 million customers as much as $1.4 billion in 2011 rebates payable next year. The new rule - called the medical-loss ratio - sets a minimum percentage of premiums (80% for individual and small group plans and 85% for large group plans) that insurers spend on actual medical care instead of wasteful overhead, excessive profits and bloated CEO salaries. Companies that fall short of the minimums must rebate the money to consumers.
Some insurers in California, Connecticut and North Carolina have already rolled backed rates, declared premium holidays or issued direct refunds. The rest of the industry should do the same nationwide.
Here are five reasons why insurance companies can and should roll back rates now:
1. Insurance company profits have gone too far.
Through the economic recession and its aftermath from 2008 to 2010, the combined profits for UnitedHealth Group Inc., WellPoint Inc., Aetna Inc., Cigna Corp. and Humana Inc. increased 51 percent.
In the first quarter of 2011, the combined profits of the five companies, which cover one-third of the U.S. population, surged 14% to $3.6 billion. If the trend holds, they'll rake in a record $14.4 billion in profits in 2011.
2. Premiums are going up while medical spending is going down.
Premiums have risen 131% since 1999 for families with employment-based insurance. America's Health Insurance Plans (AHIP), the insurance industry's mouthpiece, likes to blame customers for rising premiums. People who buy health insurance have the annoying habit of using it when they get sick. But premiums have increased at twice the rate of medical inflation.
And, as a percentage, insurers are spending less of our premium dollars on actual medical care, and more on administrative costs like lavish CEO pay, marketing, lobbying, and the care-denial bureaucracy. The ratio of medical to administrative costs is known as the medical-loss ratio. In the first quarter of 2011, Cigna led the industry in finding ways to avoid covering actual health care - the share of premiums Cigna spent in the first quarter on medical care dropped to 77.3%, an extraordinary 5.6 percentage-point decline from 82.9% a year earlier. Aetna trimmed its health care costs from 81.1% of premium revenue to 77%. And Humana reduced its patient-care spending rate by 3.5 percentage points.
3. CEOs Spend Billions on Dividends and Stock Buybacks to Boost Share Prices and Enrich Themselves.
Record profits and reduced health care spending don't tell the whole story. Insurance companies use other Wall Street tools to quietly direct customer cash into their own pockets. For instance, insurers bought back $1.8 billion in their own stock in the first quarter - a practice that reduces the number of shares available in the market and boosts stock prices.
Since 2003, the five largest for-profit companies have allocated $66.9 billion in customer cash to buying back their own stock to reward insiders and Wall Street investors. So far this year, share prices for the five health insurers have risen 38% to 52%, compared to less than 3% for the broad market index. This benefits CEOs who hold large stakes in their own companies and who get bonuses, stock awards and stock options for guiding share prices upward. Buybacks do nothing to improve public health, make insurers more efficient or reduce premiums.
The five big for-profit health insurers have been so profitable that they're shoveling it back to investors. WellPoint announced that it plans to pay $400 million in dividends this year, while UnitedHealth plans a dividend of $449 million and Aetna expects to pay $230 million.
4. Insurance companies hoard cash in the name of "solvency."
In addition to excessive profits and stock buybacks, insurers have also been building massive capital reserves. On December 31, the nation's for-profit and nonprofit health insurance companies were holding $97.3 billion in risk-based capital to cover unexpected medical claims - six times more than state regulators require, according to Citigroup Global Markets.
5. While insurance companies are awash in cash, families and businesses are barely getting by.
It's unconscionable that insurance companies continue to impose double-digit premium hikes on America's families and businesses to pay for their excess profits and financial shell games at a time when consumers and employers are struggling in this tough economy.
At the end of this year, the new health law requires insurers to square up and pay us back for their excesses. But insurers shouldn't wait to give back our money. They should start paying consumers their rebates right now.