Insurers Getting Rich By Not Paying for Care
Insurers Getting Rich By Not Paying for Care
By Wendell Potter
PR Watch, April 25, 2011
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.
Health Execs Getting Richer As Some Americans Beg for Help to Pay for Care
By Wendell Potter
The Huffington Post, April 28, 2011
On Monday, I wrote about the good fortune of UnitedHealth Group, one of the big seven for-profit health insurance companies, and its CEO, Stephen J. Hemsley. Last week, UnitedHealth pleased Wall Street so much with its report of earnings during the first three months of this year that investors clamored to buy the company’s stock.
By the time the New York Stock Exchange closed last Thursday, shares of UnitedHealth’s stock had shot up more than 8 percent and reached their highest value in more than three years. The company’s shareholders, including Hemsley, now the highest paid CEO in America, were suddenly much wealthier.
Owners of health insurance company stock continued to get richer this week. On Tuesday, Humana Inc. announced that its first quarter earnings would be so much better than Wall Street expected that it was raising its full-year profit outlook and instituting a dividend. The company’s stock price jumped 5.5 percent after disclosing that fabulous news.
The good news, at least for shareholders, just keeps on coming. This morning, Aetna announced that it, too, had exceeded Wall Street’s expectations during the first quarter — by an astonishing 54 cents a share. Yesterday, WellPoint Inc., which operates more than a dozen Blue Cross plans across the country, announced that its earnings topped expectations by 48 cents per share.
When I was handling financial communications at CIGNA, I knew investors would be pleased if the company exceeded their expectations by even a penny a share. During my nearly two decades in the industry, I never saw insurers blow past what they had been expected to earn by such wide margins. Health insurers’ shareholders must be pinching themselves today to make sure they’re not dreaming.
To make this kind of money, insurance companies have to spend far less paying their policyholders’ medical claims than anyone thought possible.
They’ve been able to do that so far this year, despite the new health care reform law, by shifting many policyholders into plans that force them to spend more from their own pockets before coverage kicks in. Insurance firms also fatten their bottom lines by denying more claims.
What are the real-world consequences? Let me share portions of just three e-mails I received this week to give you a hint. I wish I could say that such e-mails are rare.
The first came from a man who actually sells policies for one of the above-mentioned firms on a part-time basis. He decided to write me after visiting a family that was on the verge of bankruptcy because of what they have to pay for insurance coverage and out-of-pocket expenses.
He told me that the head of the family was a small business owner who was still working well into his late 60’s because it was the only way he was able to provide insurance for himself, his wife and a daughter suffering from mental illness. He was paying $28,800 in annual premiums and had just been notified that he would have to pay 25 percent more when the current term of his policy expired.
Even though he was paying more than $2,000 a month for coverage, it was far from adequate. It did not cover his daughter’s three-times-a-week visits to her mental health doctors, which meant that he had to pay an additional $300 per visit out of his own pocket. On top of that, he had to pay $1,000 every month for her prescriptions.
“It truly disgusted me, and I had no idea what I could do to help them,” he wrote.
The irony is that the part-time insurance salesman who sent the email was uninsured. He couldn’t afford coverage himself.
The second e-mail came from Molly Poole, a woman I had met in March in Lancaster, Pa. She was writing to tell about a new website — www.LetScottLive.com — that she created to help raise money for her husband’s care. While Stephen Hemsley and a handful of other insurance company executives are becoming billionaires, Molly and Scott Poole, who has Lou Gehrig’s disease, are now effectively beggars. They wrote asking me to help spread the word about their plight and to assist in their efforts to raise money.
Here’s what Molly wrote:
In short, we have been terrorized since spring 2009 with a variety of insurance company games. First we were told (by Highmark Blue Cross) that we were about to hit Scott’s million-dollar lifetime cap ‘in the next month or so.’ That was wrong, but that didn’t stop them from calling every few months to give us another ‘you’re hitting your cap soon’ scare and giving a vague date a few months out. They were always wrong in the end, but that did nothing for the panic level at the time.
Molly wrote that Scott had been transferred to COBRA on Nov. 7, 2010, after losing his job. As that coverage was about to expire, the Pooles applied for an extension. A case manager for their insurer said it would be a waste of time to apply for the extension because Scott was rapidly approaching the lifetime coverage limit. After weeks of battle, the Pooles finally got the extension, but only for a short while.
“We only have coverage through May 7,” Molly, wrote, “so that’s why we’ve created a website to try to raise funds. We need to come up with approximately $400,000 a year to cover nursing and other medical costs. God forbid a hospital stay. What savings we have left are what’s running the house. We start tapping them, we lose the house.”
Molly ended her e-mail with this: “The illness itself has been a walk in the park compared to the insurance hassles. Can you imagine something that makes dealing with Lou Gehrig’s disease a breeze compared with what they are putting you through?”
The third e-mail I got was from Stan Brock, the saint who founded Remote Area Medical (RAM) to provide care to people in isolated villages in less developed countries. Stan started his mission by flying doctors to nearly inaccessible places along the Amazon River in South America.
Today, most of RAM’s “expeditions” are in the United States, and increasingly they are to locations that are not at all remote. I went to a RAM expedition in Wise County, Va., a few years ago. The experience changed my life and contributed to my decision to quit my job and start speaking out about the abuses of the U.S. health insurance industry.
Stan wrote to tell me about RAM’s most recent two expeditions in California.
The crowds for the pair of expeditions “were similar to those you saw in Wise County, VA. We could have seen more patients had we been allowed to bring in volunteers from out of state,” he wrote.
I am convinced that if federal laws were changed so that doctors could cross state lines to provide free care, that RAM-type operations would begin to spring up nationwide and make a significant difference for health care for the underserved at no cost to the government or taxpayer. We really need an economics expert to make those sort of projections on a nationwide basis with volunteer clinics going on weekly in every state; not just by RAM but by numerous other charitable organizations and civic groups.
These three emails are just the most recent I’ve received out of many over the past several months.
I will continue to share some of them with you — and fill you in on how incredibly rich a few executives and shareholders are becoming while Americans are being reduced to begging for help to pay for health care or waiting for one of Stan Brock’s expeditions.