The $884-billion-a-year private health insurance industry, once a collection of home-grown, tax-exempt companies dedicated to fulfilling public service missions, has evolved into a Wall Street-driven profit machine controlled by the world’s biggest investment houses. Most of the shares of the largest health insurance companies are owned by huge financial institutions, and their top priority is maximizing returns on investments, not improving health. Using sophisticated technology and the vast financial resources generated by stupendous premium revenue streams, insurance companies have cadres of actuaries and skilled managers to keep them miles ahead of consumers and regulators. Because they are active in every part of the country, the business practices of dominant, national for-profit insurance companies have become the model for the nonprofit insurance companies with which they compete.
The health insurance industry is always among the most powerful special interests in Washington and every state capital, and its well-funded advocacy efforts have effectively resisted efforts to reform the U.S. health insurance marketplace for decades.
The Affordable Care Act (ACA), signed into law by President Obama on March 23, 2010, represents an historic step towards ending the insurance industry’s stranglehold on our health care, eliminating the worst insurance company abuses and guaranteeing that all Americans have quality and accessible care they can afford.
HCAN’S WORK ON THE HEALTH INSURANCE INDUSTRY
Health insurance premiums have gone up 131% since 1999. straining the pocketbooks of American families and businesses for more than a decade. As a result, families and employers are spending more money on health care as less comprehensive coverage leaves them responsible for an ever-growing share of medical costs. Premium growth has outpaced that of medical costs in recent years. Despite claims that insurance company premium growth reflects actual changes in medical costs, their increases have consistently been twice the rate of medical inflation. Consumers often receive little or no information about premium increases, leaving them at the mercy of insurance companies answerable only to Wall Street investors.
HCAN has been educating the public about these issues by releasing reports, public statements, articles, letters to the editor, news releases and social media channels. HCAN is tracking proposed rate increases filed with the federal government in accordance with ACA provisions, monitoring states’ application for exemptions from medical loss ratio standards and spotlighting abusive industry practices, such as purging of small employers with workers who are aging or developing serious medical conditions.
The ACA addresses the lack of transparency within insurance industry premium increases by mandating that proposed increases be evaluated to ensure they are based on reasonable cost assumptions and solid evidence. Insurance companies will be required to explain significant rate increases to consumers, and to publicly justify unreasonable premium hikes.
HCAN has worked with local partners to advocate in state capitals for legislation enabling insurance regulators to conduct more stringent reviews of proposed health insurance rates. Effective rate review will help bring down costs for consumers, and will make certain that increases are based on reasonable estimates and accurate data on medical costs.
Denial of Coverage
Insurance companies often deny coverage to those applying for a health plan in the individual market because of pre-existing conditions, meaning that millions of Americans who need health care the most often cannot afford it. In an effort to combat these practices and cover this growing portion of the population, the Affordable Care Act will in 2014 prohibit insurance companies from using an individual’s medical history to exclude any applicant for new or renewed coverage. It will also end the insurance industry practice of charging higher rates to women or people with health problems. HCAN generates significant media coverage of those business practices and what would again be happening to millions of Americans were it not for the ACA.
In recent years, health insurance
companies have reported record earnings, even as Americans struggle to afford basic services like hospital visits and prescription medication. Millions have been deprived of coverage because of job loss.
According to an analysis by HCAN, Wall Street-run health insurance companies took $7 billion in profits in the first half of 2011 by charging more and spending much less on patient care. Combined profits for UnitedHealth Group Inc. WellPoint Inc. Aetna Inc. Cigna Corp. and Humana Inc. which cover one-third of the U.S. population, surged toward expected profits of $14 billion for 2011 – a record. Through the economic recession and its aftermath from 2008 to 2010, combined profits for the five companies increased 51%. In 2010, profits grew by 17%. Profit reports do not include expenditures on extravagant executive pay and lavish perks enjoyed by both for-profit and nonprofit insurers. Insurers defend their increasing wealth by saying their profits represent less than one penny of every dollar of national health spending, but that is deceptive and it is actually an enormous sum. One penny of every health care dollar amounts to $357 billion over the 10 years ending in 2020, according to an analysis of government projections .
HCAN has issued numerous reports on burgeoning health insurance profits and the many ways companies have to extract more money and ensures that the media don’t take their eye off the direct relationship between Wall Street and the insurance industry.
While American families struggle to keep up with premium hikes and the increasing cost of medical care, insurance industry CEOs have enjoyed exponential growth in compensation. For their work rewarding Wall Street in the last decade, the CEO’s at the 10 largest for-profit health insurance companies pocketed nearly $1 billion in compensation in the 10 years ending in 2009. according to a conservative estimate by HCAN. As a group they received a 167% pay raise in 2009 while average American workers saw wages grow about 2 percent. The reason the CEOs are rewarded so outlandishly isn’t because they have made health care more accessible for consumers. In fact, they have cut back on benefits and marketed plans that provide skimpier benefits. Because compensation is based on executive performance as evaluated by boards of directors, CEOs lack the incentive to deliver quality, affordable health care to people who desperately need it. Instead they use their virtually unchecked power to enrich themselves and their investors by abusing consumers and manipulating share prices.
HCAN has done extensive public education about this issue through all channels of public communication.
Buybacks and Dividends
An important method used by insurance companies to maximize profits and jack up CEO pay is to deploy corporate capital provided by premium payers to repurchase company stock on the open market. The purpose of these large-scale share buybacks is to push stock prices up by reducing the supply of stock. This directly benefits not only the institutional shareholders, but it rewards insurance company leaders and board members, all of whom hold significant stakes in their companies. The practice strips companies of resources that otherwise could be used to create jobs and bring innovation to the business of health insurance. Buybacks do nothing to improve a company’s operations, make the health system run more efficiently or reduce premiums for struggling ratepayers. From 2003 to 2010, the five biggest insurance companies spent $64.1 billion buying back their own shares and lining the pockets of their senior executives while imposing ever-bigger premium increases on America’s families and businesses. That is expected to grow by billions when the 2011 reports come in.
HCAN has published reports and made public comments designed to educate the public about this use of their premium money and to shed light on the actual financial incentives that drive the business practices of the health insurance companies.