MESSAGE
| DATE | 2020-08-27 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout - NYLXS] Insurance Company Windfalls
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Major U.S. Health Insurers Report Big Profits, Benefiting From the
Pandemic
By Reed Abelson
11-13 minutes
Consumers are probably entitled to millions of dollars in rebates under
Obamacare rules that cap companies profits.
The nations largest insurers, like Anthem and UnitedHealth, had
second-quarter profits so large they will have to pay back some of those
earnings to consumers.
Credit...Michael Nagle/Bloomberg
The nations leading health insurers are experiencing an embarrassment of
profits.
Some of the largest companies, including Anthem, Humana and UnitedHealth
Group, are reporting second-quarter earnings that are double what they
were a year ago. And while insurance profits are capped under the
Affordable Care Act, with the requirement that consumers should benefit
from such excesses in the form of rebates, no one should expect an
immediate windfall.
But the amounts that insurers are retaining have caught the attention of
the Trump administration. The Health and Human Services Department
advised companies to consider speeding up rebates, and on Tuesday
suggested that they reduce premiums to help consumers through the
economic downturn caused by the pandemic.
Just this Wednesday, CVS Health, which owns Aetna, the big insurer,
posted much higher earnings. CVS, which also owns a large pharmacy
benefit manager and a drugstore chain, said net income for the second
quarter reached $3 billion, about $1 billion more than it reported for
the same period of 2019, on revenues of $65 billion.
Others had already trumpeted blockbuster results, ensuring that their
stocks weathered swings in the markets. Anthems net income soared to
$2.3 billion for the second quarter, from $1.1 billion in 2019, while
UnitedHealth reported net earnings of $6.7 billion, compared to $3.4
billion for the same three months last year.
Although many hospitals have been overwhelmed by the coronavirus
outbreaks raging from state to state, insurers have shelled out billions
of dollars less in medical claims in the last three months because
expensive, elective surgeries have been postponed in many places.
Moreover, people have steered clear of doctors offices and emergency
rooms in fear of contagion.
The companies staggering pandemic profits stand in stark contrast to the
scores of small medical practices and rural hospitals that are
struggling to stay open. And the earnings are putting a spotlight on the
big insurance companies at a time when government officials in many
states are facing massive budget shortfalls as businesses collapse,
unemployment rises and tax revenues plummet. Some states are discussing
cutting payments to insurers that offer Medicaid plans to their
residents.
This could tilt the politics against insurers on a whole number of
fronts, said Larry Levitt, the executive vice president for health
policy for the Kaiser Family Foundation, a nonpartisan research group.
And in this presidential election year, the companies overly buoyant
position could also reignite a discussion among Democrats about Medicare
for all, a proposal that would replace the current private health care
system with a government one that guarantees coverage for all U.S.
residents.
Were looking at the fact that health care cant be regulated by the
marketplace, said Representative Pramila Jayapal, the Washington State
Democrat who is a strong proponent of Medicare for all.
Who knows whats going to happen by January? Ms. Jayapal asked. Its
entirely possible that everything shifts on health care, within weeks or
months after the election.
Some lawmakers may also try to revive proposals to cap insurers profits
even more, like one that Senator Elizabeth Warren, the Massachusetts
Democrat, has suggested.
There is that money sitting there, said Dan Mendelson, the founder of
Avalere Health, a consulting firm.
Among the companies with robust earnings is Humana, which reported
Wednesday that its net income rose to $1.8 billion for the
second-quarter, compared to $940 million for the same three months of
2019. The profits for Cigna, which also owns a large pharmacy benefit
manager, were also higher.
Under the federal health care law, insurers are required to use a fixed
percentage of the money they take in from premiums for their customers
medical expenses. The companies must spend at least 80 cents of every
dollar they collect in premiums from small businesses and individuals on
health care, and 85 cents per dollar for large employers. The remaining
15 to 20 percent is all they are allowed under the Affordable Care Act
to spend on administrative costs like overhead and marketing and to keep
as profit. Any additional revenues are to be returned to consumers in
the form of rebates.
Insurers are currently spending a far lower portion of premium revenue
on their customers health care costs. CVS said its medical-benefits
ratio was 70 percent for the quarter, compared to 84 percent in the same
period of 2019.
That translates into millions of dollars that some lawmakers in Congress
and advocates say should wind up in the pockets of consumers.
In recent years, insurers have paid out billions of dollars in rebates,
said Cynthia Cox, one of the authors of a recent Kaiser Family
Foundation analysis that estimated employers and individuals would
receive $2.7 billion this year in rebates required under Obamacare. That
figure does not include 2020 amounts.
People who had health insurance through the A.C.A. last year could
receive an average of $420 a person, she said.
For any given customer, its not going to be a lot of money, said Mr.
Mendelson of Avalere. It will always feel underwhelming.
Image
Rep. Pramila Jayapal, Democrat of Washington, who wrote the Medicare for
All bill, in Washington last summer.
Credit...T.J. Kirkpatrick for The New York Times
Eventually consumers should get some of this years money back. The
insurers are not just able to profiteer, said Katherine Hempstead, a
senior policy adviser for the Robert Wood Johnson Foundation who studies
health insurance markets.
Even though the federal government is now encouraging insurers to turn
over excess funds to consumers more quickly this year, the Obamacare law
gives companies a three-year window to calculate how much to return as a
way to offset any mistakes they made in setting rates or if they
experienced unexpected expenses.
Theres a cushioning effect for swings, said Mark Hall, the director of
the health law and policy program at Wake Forest University.
So no one should count on getting money from this years burgeoning
insurance profits anytime soon.
And the financial outlook for the year is still uncertain, given the
rising number of Covid-19 cases shifting from state to state and the
longer term costs of caring for Covid-19 patients, with potentially
expensive new vaccines or treatments around the corner. Conversely, the
many people who postponed getting medical attention could flock back to
doctors offices and submit more bills for coverage.
They dont actually know whats coming around the corner, said Dr. Sanjay
Saxena, a managing director for the Boston Consulting Group. They cant
just write checks and give away the money.
Insurers say that they are using their financial strength to help
customers as well as hospitals and doctors. From the very beginning,
health insurance providers have focused on being part of the solution,
said Matt Eyles, the chief executive of Americas Health Insurance Plans,
a trade group. As examples, he cited waiving co-payments for testing and
treatment for coronavirus and paying for telemedicine visits, some of
which the government has mandated be covered.
The companies also say they are spending billions of dollars on efforts
that range from giving small businesses a break on their monthly
premiums to paying physicians in advance to help keep practices afloat.
On conference calls with Wall Street analysts, executives were quick to
point out steps they have taken to assuage the worries of Americans
overwhelmed by the virus outbreaks.
We took action to commit $2.5 billion in financial assistance to ease
the burden of Covid-19 among our members, employer customers, care
providers and nonprofit partners, said Gail K. Boudreaux, the chief
executive of Anthem. She listed several initiatives, including giving
customers a premium credit and donations to a food charity. The needs
are ongoing, and Im proud of the way Anthem has responded quickly to
provide needed support, she said.
Nonprofit insurers, including most of the Blue Cross plans offered in
individual states, are also experiencing much higher profit margins.
While they too are subject to the A.C.A. rules and must pay out required
rebates, they can plow any additional surplus into their capital
reserves, Mr. Hall said. They never feel that they have enough reserves,
and the regulators dont really require insurers to spend down their
reserves, he said.
But the companies may have even higher profits than is apparent. Some,
like UnitedHealth, have large networks of doctors and other health care
businesses, in addition to owning giant pharmacy benefit managers. There
are no limits on how much these units can make, and many of the units
sell their services directly to the insurer.
The profits being reported dont give an accurate picture of how much
money they are making for the insurers, said Michael Turpin, a former
insurance executive and an executive vice president at USI, an insurance
brokerage. Youre not going to negotiate with your sister company very
robustly.
Some hospital executives and doctors say that the insurers should do
much more. Everyone should be playing a part as it relates to the
pandemic, and insurers are no exception, said Colleen M. Blye, the chief
financial officer for the Montefiore Health System, a large hospital
group in the Bronx that has treated more than 10,000 Covid patients.
The government has been funding the providers significantly, she said,
referring to the $175 billion in funds Congress has allocated to date
for hospitals and doctors. The insurers should be sharing that burden,
and they havent been.
Insurers say they have been strong advocates for providers like the
hospital systems. Weve consistently supported their efforts, said Mr.
Eyles.
So far, investors are not concerned about the political risks of the
insurers high profits, said Les Funtleyder, who is a health care
portfolio manager for E Squared Capital Management, which owns shares of
UnitedHealth.
Even if former Vice President Joseph R. Biden Jr., the Democratic
presidential candidate, wins in November, he would probably be unlikely
to push for anything close to Medicare for all. Mr. Biden favors
revamping Obamacare and offering a public option, a government-run
alternative to private insurance.
But the calculation could change, depending on his choice of vice
president, Mr. Funtleyder said. Senator Warren, who has called for a
sweeping health care overhaul, is one of several names on a long list of
potential female running mates for Mr. Biden.
If Warren was vice president, it would definitely spook Wall Street, Mr.
Funtleyder said.
Updated Aug. 26, 2020
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