HCAN Report: Big Insurers Break Profit Records
Big Insurers Break Profit Records By Shedding Members, Cutting Share of Premiums Spent on Medical Care
As HHS Asks Why WellPoint Jacked Up Premiums, New HCAN Analysis Explains How Five Companies Boosted Earnings Despite Severe Recession
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Washington, DC – 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, according to a new report released today by Health Care for America Now (HCAN), the nation’s largest health care campaign. The health insurance industry accomplished this feat by leaving behind 2.7 million Americans who had been enrolled in private health plans the year before. For customers lucky enough to keep their benefits, the insurers raised rates and increased cost-sharing while - in many cases - cutting the share of premiums spent on medical care.
Executives and shareholders of the five biggest for-profit health insurers, WellPoint Inc., UnitedHealth Group 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. The record was broken while the industry spent millions trying to defeat comprehensive health reform legislation in Congress even as it pretended publicly to offer support.
“Big insurance made more money by insuring fewer people and by trying to get rid of the people who need health care the most,” said Richard Kirsch, National Campaign Manager of HCAN. “For-profit insurance companies cater to Wall Street at the expense of Main Street. Congress must listen to us, not the insurance lobbyists, and finish comprehensive health care reform the right way now.”
The 2009 financial reports from the nation’s five largest insurance companies reveal that:
- The firms reported $12.2 billion in profits last year, 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 insurers, with higher proportions going to administrative expenses and profits.
Of the estimated $809 billion spent on private health insurance in 2009, the five biggest for-profit companies captured $232 billion. Their share of the pie has increased steadily through mergers and acquisitions.
U.S. Rep. Rosa DeLauro (CT-3) said the report explains why insurers this year are demanding rate hikes of 20, 30, or even 40 percent from customers who buy insurance directly rather than through employers in Connecticut, California, and other states.
"Insurance companies are telling us they will raise premiums if health reform passes,” said Congresswoman DeLauro. “But as these new profit numbers, recent 30-plus percent rate increases and lower medical loss ratios, make clear, they benefit from the status quo while hard-working American families are left behind. We need health insurance reform now more than ever."
“When you see both prices and profits going up, you know the health insurance market isn’t working,” said Judy Feder, Senior Fellow at the Center for American Progress Action Fund and Professor at Georgetown University. “People are suffering under these conditions, and the insurance companies are not going to change their ways on their own.”
Most insurers continue to protect their profits by reducing the share of premium dollars spent on actual medical care, as opposed to cutting down on marketing, underwriting, overhead, administration, and gargantuan CEO salaries. This measurement is known as the medical loss ratio (MLR).
In 1993, the leading insurers used 95 cents of every premium dollar on medical benefits. But in the next several years, health insurance executives pursued mergers, acquisitions, and initial public offerings that turned the for-profit health insurance industry into a Wall Street juggernaut. By 2007, investor-owned health insurers had reduced MLRs to less than 85 percent of premiums.
The unweighted average medical loss ratio of the five companies last year was 82.8 percent, a figure some Wall Street analysts and investors consider too high. The pressure is on to bring it down further, and that will be possible in the many states that permit much lower MLRs.
"With true competition, you have to carefully price your product or you lose valued business, but health insurers don't operate in a real competitive environment,” said Andrew Kurz, former chief financial officer of Wisconsin Blue Cross-Blue Shield. “They just raise the rates for less profitable groups, unloading the losing blocks of customers but not purging a major chunk of business. Most important, health insurer losses are temporary. Even if insurers earn less money one year, they can raise prices the next to restore the bottom line. Insurers can also act in concert, raising prices with no fear of anti-trust charges."
Unless comprehensive national health reform is passed to rein in insurers, increase their accountability, and require them to offer quality, affordable coverage, the U.S. faces a bleak economic future, according to the report. Without reform, consolidation will continue unabated, Big Insurance will gain greater market power and profits, and a business model built on blatant discrimination against the sick and the unlucky will become more entrenched.
