If you made it through the headline without bile rising in your throat, you’ve already done better than me.
Just a short post today, pros, because I’ll need to spend some serious meditation time getting over news I read this morning from Health Care for America Now that shows last year (deep cleansing breath) executives and shareholders of the five largest health insurers – Aetna, Cigna, Humana, UnitedHealth and WellPoint – posted combined profits of $12.2 billion, up 56% from 2008. Cigna was particularly flush, with profit increases of 346%!
As if that weren’t enough, the huge profits were enough to break records. That’s right – as you struggled to keep up with costs and even made the tough decision to shift greater costs to already recession-strapped workers, health insurance carriers enjoyed their BEST YEAR EVER.
Feeling the bile yet? For those of you who have greater intestinal fortitude than I (or have been around long enough to be hardened toward getting this kind of news annually), click here to read HCAN’s full report.
Then comment and let the fur fly. Maybe a few brave insurer reps could let us know why carriers continue to play semantics with tired lines like, “Our profit margins actually are quite low.”
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22 Comment(s)
Posted by: Suzy_in_ny | March 2, 2010 8:12 AM
Carol3 - about shopping for health care. THIS is how we should reform healthcare. Right now it is impossible to find competitive data about providers such as hospitals, surgeons, MRI's etc. As a Benefits consultant who shops for & sets up emmployer health plans I've tried. But we should require that quality/cost data to be available. Nearly everyone has access to the internet - if not at home then at the library.
Carol3's 2nd point - would we really shop for helathcare - for our elderly parents? Funny you ask. Recently I've researched health care options for my uncle who had stroke, father-in-law with pulmonary fibrosis, mother-in-law's nursing home, son's care for learning disabilities, and mom's surgery/treatment for aortic valve replacement & recurrent ovarian cancer. Some situations were more urgent than others but I was still able to get information about surgeons, oncologoists, rehab facilities, nursing homes, etc. But I was not able to find out as much as if I was buying a TV or a car. Crazy! Even with my experience, the information available is limited - journal articles written by MDs, standard treatment for a particular illness, the best facilities, MD history. FYI Medicare.gov has a nursing home comparison on it's site that shows the state audit results - THAT was helpful. NY also has a website for Rx pricing by drugs stores near your zip code.
This information that should be mandated to be be available on all providers - SO basic. Require the information to be available then we can decide, as if buying a TV, which providers have the best outcomes & which can we afford, etc.
Only if we have skin in the game - if we are focred to make decision about cost/quality and can shop for ourselves do we have any hope of reining in this cost nightmare.
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Posted by: MSL | March 1, 2010 9:02 AM
Rob L - I'll look for that publication, thanks. It's all about the "cost" of care & treatment and the abusive provider contracting system. See my post about dialysis - a profile treatment may have a Medicare reimbursement at 4k a month, a BUCA (Blue Cross, United, Cigna, Aetna) at 15k to 30k and a regional carrier or self funded PPO plan at 25k to 40k a month for the same exact treatment. Same w/ a CABG (coronary bypass) - Medicare 10k, BUCA 25 to 30k, regional carrier or self funded PPO plan up to 50k. Cost shifting is the primary reason why our healthcare system is as flawed as it is. Not to be overly simplistic - but w/ our aging population, Medicare reimbursements should go up (and yes administrative waste should be corrected) from (an approximate) 60 cents on the billable dollar to say 80 cents. BUCA's and PPO's should be regulated to charge no more than " X" say 120% of Medicare to keep the cost shifting in check. Carriers and networks can achieve increased reimbursements to providers based on outcomes, wellness and administrative savings. Just an idea...
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Posted by: Rob L | February 26, 2010 3:10 PM
Health insurance profits may be excessive, but they are not the problem. This study was released today from Health Affairs, the prestigious health policy journal:
Growing California Hospital-Physician Market Power Foreshadows Challenges to National Health Reform
Health Affairs Article Cites Provider Market Power to Negotiate Higher Private Insurer Payment Rates as the 'Elephant in the Room' of the National Health Reform Debate Washington, D.C. -- While the high cost of private health insurance has drawn plenty of attention in the health reform debate, an underlying driver of higher insurance premiums--the growing market power of hospitals and physicians to negotiate higher payment rates--has gone largely unexamined, according to a Center for Studying Health System Change (HSC) study published online today by Health Affairs.
Funded by the California HealthCare Foundation, the study examined the growing market power of many California hospitals and physicians, finding that providers are using various strategies, such as tighter alignment of hospitals and physician groups, to negotiate significantly higher payment rates from private insurers.
"Provider market power is the elephant in the room that no one wants to talk about in the national health care reform debate," said HSC Senior Consulting Researcher Robert A. Berenson, M.D of the Urban Institute, a coauthor of the study with HSC President Paul B. Ginsburg, Ph.D., and Nicole Kemper, M.P.H., a former HSC research analyst.
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Posted by: Carol3 | February 25, 2010 2:34 PM
Suzy-in-NY writes: The genuine underlying problem driving health insurance costs is that we make decisions about the type of care we obtain without regard to cost or quality. We do not purchase ANY other product this way.
Have you ever tried to price out services, such as colonoscopies, mammograms, outpatient surgeries, etc.? It's nearly impossible, and I've was enrolled in consumer-directed health for two years, until I switched back to a PPO model with fixed deductible, coinsurance and copays. The paperwork was enough to make one crazy - and I work in the industry!
First, the patient doesn't know what is the appropriate testing/procedure that should be performed. So, how can they determine whether or not test A is more effective than test B?
Secondly, the pricing lacks transparency. You might be able to obtain the pricing for the procedure through the facility, but you will not be able to obtain the price for the provider to interpret and report the results. It's not like France where the prices are posted at the door, and it gets further complicated in large metropolitan areas. I would not want to have to drive all over the metro Detroit area to get the best price/quality every time I needed bloodwork or xrays performed.
Thirdly, how likely is that that Suzy is going to be willing to "shop" price and quality for her elderly parents (or in her senior years)? Our seniors are already vulnerable to those who would prey upon them.
Health care is not a consumable product, with a limited life span, like a car, or a pair of shoes, that can be easily shopped. Consumer-driven health care has not been successful in helping to control costs.
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Posted by: MSL | February 24, 2010 12:54 PM
Suzy - great final thought. Competition is critical. For example- take the current situation for outpatient dialysis. The most conservative industry benchmarking has Fresenius and DaVita treating about 65% of the total US dialysis population. Each one of these (publicly traded) providers business model is built on cost shifting and lack of competition. Where there is competition - these two big boys acquire, recruit the talent or drive the business threats out of town / out of business. Conservatively, 85% of their dialysis treatment is paid at Medicare reimbursements. If they are "forced" to collect payment at Medicare (say 60% of cost) they often shift 500% to 1000% of Medicare cost to their commercial clients / payors. This is how a monthly dialysis treatment that would have been $4000 in the Medicare world becomes 25k to 40k a month for commercial plans. In the 2009 Q3 earnings call - the Davita CEO (when asked about healthcare reform) indicated "...Any reduction in the number of private insurance patients as bad. Any increase in the number of private insurance patients is good. This is because 87% of the patients are government (pay)... and (DaVita) relies on the cross subsidy...". Now would regulation of the oligopoly or increase competition have a positive effect on this dramatic cost shifting to the insurer, self funded plan and ultimately the consumer participant? As an aside - both Fresenius and DaVita stock's have done very well as of late...
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Posted by: Suzy_in_ny | February 24, 2010 8:50 AM
I just took a cursory glance at the underlying report used by Kelly. VERY important lesson in Journalism 101 - consider the source. The report was compiled by HCAN. In about 3 minutes on a search engine I was able to determine that HCAN is a very liberal lobbying group whose primary goal is to create a single payer system in the USA. HCAN's state level organizations are made up of many ACORN members and HCAN recieves huge funding from SEIU, governement workers unions, teachers unions, etc. It is hardly a gross-roots organization. The first job as a journalist is to consider where the information is coming from and check your sources. Let's get a more even handed review of insurance company profit - let's look only at health, let's compare it to government programs, and let's get people involved in their own health and healthcare purchasing. Only then will be able to get a hold of run-away costs.
Just a final thought - consider lasik surgery as a healthcare cost that is market driven. Since it's almost never covered by insurance people select providers based on quality, service & cost. Lasik surgery costs have not increased over the last 10 years... Could it be due to healthy competition - or is that too simple an answer?
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Posted by: MSL | February 23, 2010 2:57 PM
I just read an interesting stat - For the top 4 national "insurers", Wellpoint, UHC, Aetna and Cigna, 64% of the total commercial members under management are in self funded plans (based on 2009 2nd quarter 10Q Reports). The national insurance carrier are more often than not just a TPA - processing claims - not in a traditional insurance risk position. It seems realistic to me that 64% of the national carriers business units are profitable while revenue associated with 36% of their lives (fully insured) is sucking wind, requiring rate increases or better cost containment. I would guess that everyone understands that even if one business unit is driving superior corporate results; you still have to manage other business units to profitability.
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Posted by: Unknown | February 23, 2010 12:15 PM
What does a 56% profit increase mean in real terms? Did they go from 4% to 6%, or what?
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Posted by: KC22 | February 23, 2010 11:16 AM
This article is not only sickening it is true. Not only are they making record profits off the backs of insureds and denying coverage whenever they can, but they are spending millions of dollars every single day in Washingto to block reform. One of the hats I wear at work is Benefits Manager. I know first hand about the increases in premiums and denial of benefits. Anyone who thinks the insurance companies aren't out to make huge profits at our expense needs some serious therapy in order to face reality.
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Posted by: Suzy_in_ny | February 23, 2010 9:43 AM
Kelly - your argument is based on emotions and a false premise. Calm down and take a look at the facts. As many have pointed out profit expressed in simple dollars is not meaningful. You have to examine only the profit on the health insurance lines of business. State insurance departments only allow increases that are justified based on losses & expenses on the specific line of business. The genuine underlying problem driving health insurance costs is that we make decisions about the type of care we obtain without regard to cost or quality. We do not purchase ANY other product this way. We compare prices and quality for electronics, cars, homes, auto insurance, clothing. WIth health care we make demands that a exorbitantly priced procedure or drug be provided for us without regard to it's cost, effectiveness or the cost of a procedure that has a similar outcome at a far lower cost. A simple example: is an MRI absolutely neccessary or would a sonogram be sufficient? I can guarantee that if we were paying the $1500 vs the $300 from our own pocket we would take the cost/outcome information into consideration in our decision. The federal government's cost of providing Medicare & Medicaid is far higher than private insurance when adjusted for severity - and the govt doesn't provider 24 hour nurselines, chronic & large case management, online information about wellness, etc. that insurance companies do. We have to get our heads out of our butts and realize that just becuase a company makes a profit they are not evil - and in fact may be doing things very efficiently. Competition promotes efficiency. Wake up and stop buying into the idea that profit is evil. Someone has to employ people who will pay taxes!
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Posted by: citizen | February 23, 2010 7:42 AM
Wonder what the corporate executive salaries and bonuses are that drive total income down to net income.
There's where your premium is going.
Greed - it's the American way.
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Posted by: benefitsnabors | February 22, 2010 6:39 PM
Just another example of why we need more competition and less regulation. Profit in America is good! If the Small Business Owner has the freedoms to participate then you will have fierce competition. It's the competitive playing field that will bring down prices and improve quality. When only big business is competing there's not much offered to the consumer. Get government off the backs of our small businesses.
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Posted by: Chris Curran @ Cigna | February 22, 2010 4:40 PM
I read your article with interest and was compelled to write to accurately portray the facts.
Improvement in Cigna's 2009 net income was driven primarily by our non-healthcare businesses. Specifically, our run-off (discontinued) reinsurance business which is tied to changes in the equity and interest rate markets improved significantly (we saw declining equity markets in 2008 which resulted in the poor performance of this business for that year). Earnings in our health care business improved modestly (less than 2%) in 2009 largely as a result of a strong focus on reducing administrative expenses.
So as Vicki pointed out in a previous comment, we were coming off disappointing results in 2008. In fact our profit margin for the full year 2009 was a modest 5.6 percent, well below the margin of many industries.
I'd also like to point out that in 2009, CIGNA increased the percentage of premiums spent on patient medical care to 85.5% from 84.8% in 2008 while at the same time we were able to reduce administrative operating expenses.
Chris Curran Director, Corporate Communications Cigna
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Posted by: BillG | February 22, 2010 3:27 PM
Large numbers and high percentages taken out of context may make for good copy, but let's put them in perspective.
The companies you cited have, very roughly, combined revenues of over $233 billion, so if their combined earnings came in at $12.2 billion, that's just a little more than 5% of revenues, hardly anything to write home about and far from excessive. (If you were able to sock away 5% of your salary, you'd probably say that was good, but I'm sure even you wouldn't say it was excessive.)
And, before you bash CIGNA for a 346% increase in earning, take a look at where they came from (sorry to bring up that context thing again). CIGNA's 2008 earnings were $292 million, just 1.5% of revenues, which was down 75% from the prior year. So the fact that they're beginning to recover should be good news.
Again, the way you use numbers may make for good copy but it doesn't tell the whole story and is a bit disingenuous. So, next time your bile starts acting up, take an Alka Seltzer.
Oh, and I'm not an insurance rep. Just someone who's leery of those playing the big numbers game.
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Posted by: Busy Bee | February 22, 2010 3:25 PM
I think the sudden uptick of carrier profitability can be summed up in three words: Avoiding adverse selection. Carriers are getting more saavy then ever and are cherry picking their risk pool more then ever before. They doing this by slashing jobs, payroll, and services in the areas like individual and small group business (2-10 employees) and high risk middle market 2-50 segments that are historically high claim drivers. Hey, why bend over backwards and offer great service and reasonable rates to potential customers that'll just drive up your claims and send investors barking.
Another tactic they're using is to price out their richer plans that attract the "sickies" and offering high copay and high deductibles plans and forcing "consumer driven" programs that keep the nuisance claims down. Add that to strict enrollment, credential, and participation requirements and presto.....Houston...we have double digit profitability!
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Posted by: dsw713 | February 22, 2010 3:24 PM
I only know one thing. Our incumbent carrier on our fully-insured plan came to us with a 39% renewal increase with no documented justifcation because we are under 100 lives. There is no reporting. Don't tell me about pooling. The technology is so advanced today, you can at least tell us premiums paid versus claims paid, top 10 prescriptions, percentage of generics versus brand, top ten diagnosis, etc. so we can educate and create wellness programs tailored to our employees. I want full disclosure and transparency (w/o employee names) down to every last dime of what we are paying for with our premiums.
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Posted by: Jonathan H | February 22, 2010 3:16 PM
The five largest insurers had $12.2B in net income and $232.5B in revenue. That comes out to a margin of 5.2%.
An even more relevant context for the profit number is this: the US spent $2.3 trillion in 2009 on health care, according to CMS. The $12.2 billion in profit now appears so small as to be almost a rounding error: 0.5%.
Regardless of whether you believe the profit is too high, you cannot argue that reducing this profit will make a serious dent in health care costs. All private health insurance profit combined (all 1,000 insurers) only amounts to 1% of total health care expenditures. All private health insurance administration combined only amounts to around 4% of health care expenditures. This is because only about 1/3 of health care expenditures are paid through private insurance. Roughly half is from government sources and the rest is out of pocket.
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Posted by: James G | February 22, 2010 3:02 PM
Jerry B may be 100% correct that the regulators didn't do their job. That does not relieve the insurance companies for asking for such huge increases. Cigna profits rose 346%?? I have enough anger to direct to both those regulators AND the insurance companies. If an adoptive prent abuses a kid, I'm not going to place the blame soley on the Child Services Department, I'm going to also hold the parent accountable!
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Posted by: Jeff S | February 22, 2010 2:51 PM
I'm sorry you don't understand economics Kelley. If profits at McDonald's are up by $12B, it doesn't mean a thing if net profits are down or zero..or less. Beside that, the source for your story is clearly in the business of bashing and desirous of government dominated health care. I would have to double check that they did not twist some facts from SEC filings in producing their story. Plus, you have no idea if profits came from selling businesses within the business such as Wellpoint recently did, or if they sold buildings, etc. You don't know where the profits came from. Was it from rate increases? Were their loss ratios that much better? Sorry, I need a more thoughtful insight than you have provided.
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Posted by: Vickie | February 22, 2010 2:36 PM
What were the actual profit margins in 2008 and 2009 as opposed to the increase? If the profit margins in 2008 averaged 10% and went to 56% in 2009 that would seem outrageous; but if the profit margin in 2008 was 1% and went to 5.6% in 2009, that does not seem unreasonable. Put another way, was 2008 a particularly bad year from which the insurance companies were recovering.
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Posted by: Christopher M | February 22, 2010 2:27 PM
Jerry B writes: "They [state depts of ins] are the people we as citizens have put in the position to assure us that premiums, payments and profits are well balanced."
I hope you're kidding. Most insurance departments I've seen couldn't care less if premiums are "well balanced". Most are practically owned by the insurers. Their main tasks are to make sure that insurers remain profitable, weed out or reform failing insurers, make sure the insurers fill out all the paperwork, follow state insurance laws and don't horrendously abuse their policyholder. The free market and price competition, which work so well in the insurance world, will curb excessive profits.
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Posted by: Jerry B | February 19, 2010 11:55 AM
As I am sure you and the readers of this blog are aware, health insurers must receive approval for any rate increases from their respective state Departments of Insurance. Each state has some regulatory authority that oversees rate increases for health insurers. It is the regulatory body that you should direct your anger toward. They are the people we as citizens have put in the position to assure us that premiums, payments and profits are well balanced.
So that bile you feel should not be the result of the insurance companies who are acting in the best interest of their shareholders, but it should be because the regulator whose job it is to constrain the corporation's natural inclination to earn excessive profits has failed.
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