Insurance Company Profits

ANALYSIS: Insurers value profits over people

Three of the biggest health insurers have announced quarterly earnings in the past few days. If Americans were able to eavesdrop on what executives from those firms tell their Wall Street masters every three months, they would have a better understanding of why premiums keep going up while the number of people with medical coverage keeps going down.  

It only takes three words, when you get right down to it, to describe the real MO of those folks: profits over people.

CIGNA and Humana are scheduled to report earnings this week. The three companies that have already spoken — UnitedHealth, WellPoint and Aetna — earned a combined $2.51 billion from April through the end of June, more than analysts expected. On a per share basis, their earnings were up more than 17 percent on average compared with the second quarter of 2010.

Those results were no anomaly. The big for-profit health insurers have been blowing analysts’ expectations out of the water for several quarters in a row, even as the country struggles to recover from the recession and the number of Americans without coverage—one out of every six of us—continues to rise.

Based on their strong performance during the first half of this year, UnitedHealth, WellPoint and Aetna have all have raised their profit forecast for 2011. In other words, they expect to earn far more this year than last year and far more than even the most hopeful investors and analysts had anticipated.

This has made Wall Street very happy indeed, as reflected in the breathtaking increase in the companies’ share prices over the past year. Since the end of July 2010, investors have bid up the stock by more than 50 percent at four of the big five.  WellPoint, the laggard, saw its stock price increase by a still-impressive 35 percent. 

One of the secrets to achieving these results is what the insurers euphemistically call “medical management.” That often translates into denied claims and denied coverage for doctor-ordered care.  The fewer claims you pay and the more procedures you refuse to pay for, the more money is left over for investors to put in their pockets.

Another important way they’ve been able to sustain such a string of impressive earnings results is to shift more and more of the cost of care to their policyholders. An increasing percentage of these companies’ policyholders are enrolled in plans that require greater cost sharing. Those policyholders pay more for care out of their own pockets than ever before while their insurers are paying much less.

Grow Your Health Savings Account Instead Of Insurance Company Profits

Health care costs may be breaking the family budget, but they're no problem for the largest health insurance companies. They have posted record profits for three straight years. Frequent and large premium increases aren't the only fuel driving this trend.

Bigger co-payments to see a doctor may be discouraging people from making doctor appointments. Even among those with health insurance benefits, covered members are seeking less health care. Health insurers just continue to pocket the premiums whether or not they spend much on doctor and hospital care for members.

With health care reform, insurers are being required to spend at least 80 percent of the premiums collected on health care for the members paying those premiums. That could take a bite out of record profits, but insurers also have another advantage.

High-deductible health insurance plans have been seen to discourage health care consumption. To lessen the risk of people putting off seeing a doctor until their health deteriorates, health care reform has also taken a lot of the risk out of plans with high deductibles.

High-deductible Health Insurance Plans Totally Cover Preventive Care

As premiums rose, both companies offering employees health insurance and people shopping for their own health insurance switched to high-deductible health insurance plans to keep their insurance premiums low. Before health care reform, policyholders were hesitant to spend from $1,000 to $10,000 to meet the deductible. That meant not seeing a doctor for far too many people.

Health care reform doesn't change plans previously purchased, but it does mandate that any plan you buy after health care reform became law provide recommended preventive care with no out-of-pocket costs. That means the plan's deductible does not apply to annual checkups, many vaccinations, and the most common screening procedures to detect life-threatening problems like cancer, diabetes or heart disease.

With 100-percent preventive care coverage, high-deductible health insurance plans have become a legitimate way to invest in your own future rather than in an insurer's profit margin. With preventive care covered, you're less likely to meet a plan's deductible. As long as your health is relatively good, you can take on a little more risk by trading low premiums for a high deductible.

A Health Savings Account Is An Investment In Your Future

To invest in your future, look at the policies that allow you to open a Health Savings Account (HSA). With one of these tax-advantaged accounts, you can invest what you save on premiums in bonds, mutual funds, stocks or an interest-earning savings account. No matter how much your HSA earns, the balance will roll over from year to year and you won't have to pay taxes on the growth.

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