Saturday, February 13, 2010

Health Insurers Break Profit Records As 2.7 Million Americans Lose Coverage

Health Care for America Now!
February 2010
Health Insurers Break Profit Records As 2.7 Million Americans Lose Coverage
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 in private 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, UnitedHealth Group 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.

Of the estimated $809 billion spent on private health insurance in 2009, the five biggest forprofit companies...  captured $232 billion.

Medical loss ratios for 2009:
WellPoint - 82.6%
UnitedHealth - 82.3%
Humana - 82.8%
Cigna - 81.2%
Aetna - 85.2%

Is health insurers' profit 2% or 22%?

Comment:  In a previous Quote of the Day (link above) it was pointed out that, for investor-owned private health insurers, the percentage of revenues reported as profits does not represent how lucrative the profits actually
are for this industry. In light of record profits being reported, let's look at an update of the numbers.

For purposes of these ballpark calculations, revenues are assumed to be premiums paid for purchase of the private plans (ignoring investment returns on reserves). The revenues are split into 1) a fund to be used to pay for
health care benefits, and 2) funds to operate the business entity that is selling insurance services. The latter portion includes all administrative expenses and other costs of running their businesses, plus profits.

Those funds being held to pay for health care, in essence, are funds that belong to the insured and are merely being held by the insurers "in trust." They are not part of the actual business operations of the insurers. Their
exposure to risk is almost negligible since their actuaries continually adjust premiums so that they cover the potential risks.

Their actual business entity is the creation, marketing and servicing of their products that provide administrative services for health care financing. This is comparable to the service that they provide to self-funded employer health benefit programs. The actual business entity is very similar, but the employees' health care funds are held "in trust" by the employer rather than the insurer.

Setting aside the "trust funds," let's look at what the actual expenses and profits are for the five biggest for-profit health insurers. 

The non-weighted average of their medical loss ratios for 2009 is 82.8%. That means that 82.8% of revenues go into the "trust funds," and 17.2% is retained for their administrative and other business expenses plus their

These five companies had combined revenues of $232 billion. Of that, $192 billion went into the "trust funds," and $40 billion went into their business operations and profits. Their combined profit was $12.2 billion. That $12.2 billion profit out of the $40 billion that they retained for their business expenses means that their actual profit averaged over 30%. Over 30%! No other industry has returns anywhere near this level.

The insurance industry often responds by saying that their profits are less than one percent of our total national health expenditures (NHE). Even if that is true, these five companies alone kept one-half of one percent of our
NHE as their profits.

Some in the policy community say that eliminating profits of the private insurers won't save enough to make a difference. But they miss the point. First, that $12.2 billion would provide for quite a bit of health care. But
a far greater amount could be recovered by eliminating the administrative excesses of the insurers and the costs of the administrative burden that they place on physicians and hospitals.

But the most important reason is not even quantified. This intrusive industry has taken away our choices in health care by assessing heavy penalties for care provided outside of their restrictive networks, while putting in place numerous barriers to the health care that we need. Why do we reward these despicable people so richly for their unseemly, heinous acts?
We want a system that helps us get health care that we need, like Medicare, not one that impedes our access to care as they pick our pockets and snatch our purses.

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