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Insurers Getting Rich By Not Paying for Care
If I had stayed in the insurance industry, my net worth would have spiked between 4 p.m. Wednesday and 4 p.m. Thursday last week -- and I wouldn't even have had to show up for work.
I'm betting that just about every executive of a for-profit health insurance company, whose total compensation ultimately depends on the value of their stock options, woke up on Good Friday considerably wealthier than they were 24 hours earlier. Why? Because of the spectacular profits that one of those companies reported Thursday morning.
Among those suddenly wealthier executives, by the way, are the corporate medical directors who decide whether or not patients will get coverage for treatments their doctors believe might save their lives.
UnitedHealth Group, the biggest health insurer in terms of revenue and market value, earned so much more during the first three months of this year than Wall Street expected that investors rushed to buy shares of every one of the seven health insurers that comprise the managed care sector. In my view, it would be more accurate to call it the managed care cartel.
UnitedHealth is always the first of the big seven to announce earnings every quarter, so investors consider it a bellwether. If UnitedHealth exceeds Wall Street's expectations, as it has been doing consistently, investors assume that the other six will do likewise. Sure enough, all seven -- Aetna, CIGNA, Coventry, Health Net, Humana, UnitedHealth and WellPoint -- saw their stock prices close Thursday afternoon at or near 52-week highs.
UnitedHealth's shares shot up more than 8 percent during the day. Increases of that magnitude are so rare that I could almost hear the champagne corks popping in the Minnetonka, Minnesota office of UnitedHealth's CEO, Stephen J. Hemsley.
Wall Street analysts had worried that health insurers would have such a hard time complying with the provisions of the year-old health care reform law that their profit margins would decline. Those concerns were put to rest when UnitedHealth reported that its operating margins were "stable" at 8.7 percent in the quarter. The company's stellar performance should also put to rest -- forever -- the myth that "ObamaCare" is "bleeding insurers dry," as industry apologist Sally Pipes contended in a Feb. 24 commentary in Forbes.
Noting that UnitedHealth's 13 percent increase in profits prompted the company to raise its full-year earnings forecast, the Minneapolis Star Tribune opined, "Life under new health care reform laws may not be so rough after all."
Indeed. Consider these numbers: UnitedHealth's profit during the first three months of this year increased to $1.35 billion from $1.19 billion a year ago. When you do the math to determine the company's earnings per share, the result is nothing short of jaw-dropping. On that basis, UnitedHealth's profit jumped from $1.03 to $1.22 per share. Wall Street analysts had been expecting the company to earn just 89 cents a share. When you beat Wall Street's expectations by 33 cents a share, you have accomplished something that most CEOs can only dream about.
UnitedHealth's CEO at Top of Forbes 2011 Executive Pay List
Speaking of CEOs, Stephen Hemsley in particular made out like a bandit Thursday. Already at the very pinnacle of Forbes 2011 "Executive Pay List" (you read that right, his total compensation of $101.96 million last year made him the highest paid corporate executive in the United States of America), Hemsley saw his net worth skyrocket last week.
Of that $101.96 million Hemsley "earned" last year, $98.55 million came from stock gains, mostly from exercising options. And that doesn't even count the value of stock options he hasn't yet cashed in. According to published reports about the company's Securities and Exchange Commission (SEC) filings, the total value of the options Hemsley had not exercised by the end of last year totaled almost $745 million. Considering the fact that the price of UnitedHealth's stock has increased by more than $20 per share in just the last nine months, you can be pretty certain that Hemsley is now sitting on a stash of options worth well over $1 billion. That doesn't count the shares of UnitedHealth stock Hemsley owns outright, the value of which was estimated to be $111.4 million at the end of 2010 and which, of course, is much higher now.
As you can imagine, Hemsley and other UnitedHealth executives were peppered with questions during the company's conference call with Wall Street analysts last Thursday. They wanted to know how UnitedHealth had pulled off such a stunning accomplishment.
As it turned out, they pulled it off by paying far fewer medical claims than anyone had expected. That in and of itself is not new. Last year was one of the industry's most profitable years because, the big insurers insisted, their policyholders had not needed to go the doctor or check into the hospital as much as they had in the past. Consequently the insurers did not have to pay as many claims. The reason they gave was that the flu season last year was much less severe than predicted.
Insurers Mum on What's Really Making Their Profits Skyrocket
Well, it turns out that dog won't hunt anymore. UnitedHealth executives admitted during the call with analysts Thursday morning that "the incidence of influenza was substantially higher this quarter than last year." So, even though more people had to be treated for the flu during the first three months of this year than UnitedHealth had expected, the company still managed to spend less on medical claims during the quarter than investors had expected.
Not being able to attribute the unexpected decrease in medical spending to a mild flu season this time, Hemsley and his colleagues said it was because of the unexpected decrease in stormy weather.
I'm not making this up. They blamed the company's good fortune on "the effect of severe consistent winter weather conditions across significant portions of the country."
Veteran analyst Christine Arnold of Cowen and Company apparently wasn't buying it, so she pressed for more "clarity" during the call.
"Excluding places where you saw winter storms," she asked, "was utilization (of health services) up?"
Earlier in the call, the executives seemed to be suggesting that the number of inpatient hospital "bed days" was down considerably because of bad weather.
"So, excluding storms," she probed, "were bed days up?"
UnitedHealth's chief financial officer, Dan Schumacher, finally had to 'fess up.
"Bed days excluding storms were flat to slightly down depending on the geography," he replied.
In other words, it wasn't the stormy weather after all. Unfortunately, Arnold did not press further ("OK. That's helpful. Thanks," she said) and no one asked the logical follow-up question: "Well, then, what was it?"
Insurers Pinch Policy Holders for Higher Premiums and Out-of-Pocket Costs
Contrary to what insurance company bigwigs try to make us believe, it is not snow, sleet and freezing rain or mild flu seasons that enables these companies to blow Wall Street's estimates out of the water. What they will not admit is that their companies are making record profits by pushing more and more of us into benefit plans that require us to pay a whole lot more out of our own pockets before they will pay anything for our medical care.
And I'm betting that if the insurers had to disclose their rates of claim denials and the number of procedures their medical directors are refusing to pay for, we would see that those numbers are increasing, and maybe substantially. Medical directors know they play a key role in meeting Wall Street's expectations, and they're rewarded with raises, bonuses and, yes, stock options, if management is pleased with their job performance. The less money these companies pay out for care, the more is left over to reward shareholders and a bunch of corporate executives.
This is why, folks, that "utilization" is down. Growing numbers of people who have insurance, who are paying hard-earned money every month for coverage that is increasingly inadequate as well as expensive, simply can't scrape up enough cash to go to the doctor or hospital or, in many cases, even pick up their prescriptions.
That is a trend that the insurers are determined to continue. And while we are being forced to go without necessary care and empty our pockets to pay our premiums, insurance company billionaire Stephen Hemsley and his cohorts are stuffing their pockets -- with our money.
35 Comments so far
Show AllStating the obvious is sometimes necessary.
Why Americans trap themselves in small box thinking with no attempt to break out of the box is the real victory of the insurance companies aided by their harry and louise ads.
Every industrialized country on the planet has either government run health insurance or heavily regulated private health insurance companies. The U.S. is the only market in the world that uses peoples' sicknesses as a source of profit.
But we are only following Ayn Rand's recommendation to let the poor and the sick die so the strong can live comfortable. lives. Isn't that what God intended?
Sarcasm?
Ask if the religious right agrees with Rand. Then ask Republicans and Democrats. Open the kimono. Don't carry their water.
It's obvious to many of the people who post on this site. It isn't obvious to a lot of U.S. citizens. It needs to be stated. Every time the insurance companies harm someone by denying a claim, that occurrence should be publicized to the maximum of the left-liberals' ability. People in the middle and just to the right of the middle don't like those stories and, if enough of them are told, the idea that this is a cruel crooked policy that is standard operating procedure for the whole insurance world may catch on big time.
Until all single payer advocates focus on care and leave insurance to dust, this nation will never attain even a simple public option much less a strong single payer health care system. Doctors exploiting weaknesses in insurance coverage to cover up for their own frauds and/or actual lack of qualifications and insurance companies giving coverage for Big Pharma but no non-profit alternatives is proof right there. Mr. Potter, thank you for confirming the fact that insurance is nothing but a scam.
"Until all single payer advocates focus on care and leave insurance to dust ..."
Absolutely! In an article earlier this week, Dr Margaret Flowers of PNHP--who is usually a cogent critic of the current system--framed an argument in terms of private health insurance versus "public health insurances," that is, Medicare and Medicaid.
Bad move!
Single payer needs to be understood as a taxpayer-funded system that provides universal CARE to all legal residents of he United States based upon an agreed basket of therapies and negotiated payments to providers, preferably in a non-profit structure. The political fight to define the benefits and their values will be brutal, but must be engaged, and the detail devil confronted. Otherwise, as Mr Potter warns, the majority of Americans will be priced out of the market and, quite literally, thrown under the bus. The outcome is guaranteed if we do not deal with the runaway costs of insurance profits and administrative expenses coupled with the costs of high end medical devices and procedures.
Sigh, I will give Dr. Flowers credit for her overall efforts to get single payer health care underway. She has been put through far too much pain and persecution by our fascists in charge. She cannot be alone in fighting for single payer health care. It is we the people who must build confidence together and help Flowers out on this. She did everything she could. National single payer is out of reach for the forseeable future and statewide is prohibited until 2017. We might as well try calling for local single payer and work on dissolving the scam known as insurance.
Ins. companies own America.
Ins. companies indeed own amerika, and right now the movement afoot, under the guise of "cutting the budget", is to abolish Medicare. The Ins companies know full well that Medicare is the new thorn in their side. The sooner their bought-and-paid-for politicians can get rid of it the better off they are. Their agenda right now is five, ten years from now, Medicare is outta sight, outta mind.
The whole thing with the town-hall meetings and the Tea Party protests and all looks like one big charade, especially since a single payer system was declared as "off the table" at the very start. Would the people have missed much if this whole "Obamacare" thing had not been taken up as some kind of priority in the first place?
Indeed.
In post-Empire America there will be Medi-Care for all.
We can make it so.
Exactly. We won't get Medi-care for all until the people get to a point where we've all had enough and we take back and control our "Government for the People". Not until the US Empire topples (which is inevitable as history has shown), will we see decency in this country for ALL.
Therefore what Wendell? You have been an advocate of the Obama Health Care Affordability Act and the HHS regulations that Sibelius has imposed. Obviously as long as there are private for profit insurers in the system they will find a to wriggle out of their constraints. Either they will raise premiums if they have to pay out so that their cut becomes a smaller percentage of the total thus fitting under the Sibelius 20 % rule, or call some of their services "medical" so that they are exempted from the 20% cut, ( a favored tactic of Highmark in PA) or they will find find ways to decrease "utilization",or pay out by making it more expensive for a user to file medical claims. I'm not surprised by any of this. In fact using high deductible, copays and limiting coverage options has been a stated strategy of the Obama plan to control costs. Look a bit closer at Romney care in Mass. if you want to see how this is playing out. We will not be effective "reigning in" these companies or ever getting them to behave better. For God sakes Wendell you were one of these executives. You should know who they are. There is only one solution. We have to eliminate them.
Wendell is one of the very few people I actually admire on this planet. Once he was made aware off the injustices of his industry he went way out of his way to do something about it. If you have followed him like I have you'd know he is for single payer, but realizing that it is probably not possible because of the insurance company's clout, he was and is for a strong public option as a way to do something to make them more honest.
My guess is he has done more to try to fix our current health care mess than anyone who writes articles here or posts here on CD. But of course because he wasn't always perfect, or isn't perfect now he must be castigated by the purists here. As much as I like CD I really wish the "purists test" nonsense would stop.
Tom, no. I too thought Potter was a reformed good guy--I see through his act now.
When confronted by the thuggery of our Health Insurance Industry even someone with a normal sense of decency would feel revulsion. The fact that Wendell has pulled out of it and now offers his criticism did take courage and I do admire him for it. He does have a conscience. That's good. If we ask whether that alone is enough to eliminate a moral evil-- that's another question. Wendell supports Single Payer the way Obama did-- theoretically. In practice Wendell settles for the mild reforms of the Health Care Affordability Act. Better to take the small step which can be grasped than the large one that seems impossible. I understand that but I also have another perspective. This small but attainable step is not big enough or bold enough to solve the problem. My conscience is not salved if I know that the suffering which our private, for-profit, employee based Health Care ignores is still there. There is a systemic problem in the way Health Care is delivered and will not cease until a different system is in place. Our present system is so corrupt and evil that it cannot be patched up. I want Wendell to continue his exposés. I want him to continue to shame these executives. I just don't think it will be enough to really change things for the better. Call me Utopian, call me an idealist, call me purist--I've been called worse. As for Wendell I would say to him what Jesus said to the young man who seemed to understand the principles Jesus was espousing but refused to follow him, "Realizing how much the man understood, Jesus said to him, "You are not far from the Kingdom of God."
Tammons,
Thank you.
The callous greed of the plutocracy-INCLUDING the so called "health insurers', makes me appreciate my "socialized" medicine of the VA.
I admit that the VA is FAR from perfect, but I enjoy much better care there and at lower costs than I get in the "free market".
Whern investors buy health insurers' stock thay are buying death.
Mr. Potter--you have made big money from the insurance cartel and now your critique of them (your book). Where were YOU when Obamacare was about to be passed? You were not supporting Medicare for all as would have been the moral choice, instead you where on MSNBC Ed's Show/ Countdown telling America Obama's bill is "a start, it's better than nothing." When the rubber met the road you supported Obominbation care. I don't care what you have to say now.
I think Potter has a long ways to go but I will give him a chance to progress still coming off his former job. Developing class conscious takes time. From reading the article, I had a feeling that he is starting to regret ever having worked for the scam known as "insurance" to make a living.
And don't forget that President Flim Flam (Barry "The Fraudster" Obama) wants to force people to pay into this massive insurance fraud swindle. He wants people to pay the insurance companies who are, along with being the worst kind of thieves and fraud artists, operators of death panels. Such companies are illegal in most of the world nowadays, proving that outside the US humanity is making advances.
One scam on top of another. Insurance companies have as their mission to make the most money for their shareholders. That's the way Capitalism works. And that's why we need to eliminate Capitalism and insurance companies ASAP. Till that happens, people will continue to die needlessly. More people are being killed every year by insurance companies than were killed on 9/11. So that makes insurance companies more dangerous than terrorists. We accept these 'terrorists' because they make profits for their shareholders.
Interesting debate going on in Vermont right now. Should farm workers who are not citizens have access to health care? My view is, of course they should since health care is a human right....but that's a moot point since many Vermonters who are citizens do not have access to health care.
I know exactly where some of the extra profits for the health insurance came from; they came from the increased deductible on my insurance. Above my co-pay, I am having to pay more out of pocket expense then ever on my insurance.
Add to that, last year insurance companies were raising rates as much as 30% in certain areas. Obama and the Democrats health care legislation is a boon to the health insurance industry, no matter how much lipstick they try and put on the legislation. It is noticeable that the Obamabots and Demobots generally stay away from promoting Democrats on articles like these.
My 67 year old brother had a quintuple bypass 2 days ago. He admitted that he waited far too long to see a doctor, due to cost concerns even with Medicare......but said if he had not had that coverage, he wouldn't have gone at all.....and thus would be dead now.
How many others will die because our sorry Congress did not even give Americans the Public Option??? THANKS, PREZ OBAMA AND CORPORATE DEMOCRATS!!!!!!
We are having a bit of trouble in the UK as well with the conservative led government attempting to push through far reaching privatization plans for our NHS,the way things are going this could lead to their downfall (hopefully)
As was said by someone "the conservatives know the price of everything,but the value of nothing"
In Vermont the newly elected Democratic Governor who campaigned on a promise to give us Single Payer has now backed down on that promise. Instead he is now supporting assisted suicide for elders and those who are sick.
I can no longer afford the premiums for my Blue Shield policy. They went from $235 a month to over $600 a month, if I was still paying them between 2008 and today.
So I have no access to health care. My 1982 Mercedes Station wagon is worth more than $2,000 according to the welfare, so I can't get Medical.
The coverage I had with Blue Shield had a $5,000 deductible and a $2,000 co-pay. This meant that I paid the first $7,000 in medical costs each year. When I was recovering from injuries received in an auto accident in September of 2008, I had to drop out of physical therapy for my reconstructed shoulders in January of '09 because I did not have an additional $7,000.
On average in the United States $7,000 is spent annually, per capita, on health care. So, when you spread the costs over a large group, like California Blue Shield, their average expenditures would be $7,000, per person, if they did not exclude people with pre-existing conditions and other health risks. So when I have to pay $7,000 for the first $7,000 for health care each year, it means that, on average, Blue Shield pays nothing for my health care. They receive the premiums each month, but, on average, pay out nothing in return.
Sunday 1 May 2011
by: Edward B. Barbier,In my recent book, Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Scarcity, I have argued that the world is entering a new era, the “Age of Ecological Scarcity”. The main development challenge of this era is the implications for global poverty. Exacerbating the problem is that, compared to past eras in human history, economic growth through exploiting abundant “frontiers” of land and natural resources will no longer be the means to improve the livelihoods of… human populations…
-in this situation there will be winners and losers. the winners will win, and the losers will die....guernica