American leading health insurers are experiencing a staggering amount of profits, companies including Anthem, Humana, and United Health Group have reported second quarter earnings that are more than double what they were a year ago. The Affordable Care Act caps off how much insurance companies can profit, with the requirements that consumers should also benefit from excess in the form of rebates. Still, I wouldn’t hold my breath waiting.
These excesses and the amounts that insurers are retaining have caught the attention of the current administration, and the Health and Human Services Department is advising companies to consider speeding up the rebates, the agency even suggested that the companies reduce premiums to help Americans through the economic downswing that is being caused by the continued Governor mandated state shutdowns and restrictions.
For example, CVS Health, which owns Aetna reported a net income for the second quarter hitting $3 billion, which is around $1 billion more than the same time last year, on revenues of $65 billion. Others are also reported massive profits, ensuring that their stocks have the ability to weather the markets. Anthem had a net income of $2.3 billion for the second quarter which is up $1.2 billion from this time last year, and United Health reported net earnings of $6.7 billion which is up $3.3 billion from this time last year. That is a lot of money for just three months.
Some hospitals have been overwhelmed by the outbreak while others have only had mild upticks, which not only ranges from state to state but also from city to city, but during this time insurers have paid out billions of dollars less in medical claims during these months due to expensive, elective surgeries being postponed in many places. To add to this most people have been avoiding going to doctor’s offices and emergency rooms to try to stay clear of places that infected people are more likely to be at.
Insurance company’s staggering profits during this time of pandemic are in stark contradiction to the scores of small medical practices and rural hospitals that are struggling to stay open; this excessive profit puts a huge spotlight on the big insurance companies at a time when government officials in many states are facing gigantic budget shortfalls as businesses are collapsing, unemployment continues to increase, and tax revenues plummet. Some states are even considering cutting back on the 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.
Insurance companies rolling in profits are expected to rekindle the flame on discussions regarding a Medicare for all program, which is a proposal that would replace the current private healthcare system with a government controlled on that guarantees coverage for all American residents.
“We’re looking at the fact that health care can’t be regulated by the marketplace,” said Representative Pramila Jayapal, the Washington State Democrat who is a strong proponent of Medicare for all. “Who knows what’s going to happen by January?” Ms. Jayapal asked. “It’s entirely possible that everything shifts on health care, within weeks or months after the election.”
Lawmakers are also trying to revisit proposals to cap how much that health insurance companies can profit, such as the one that was suggested by Massachusetts Senator Elizabeth Warren.“There is that money sitting there,” said Dan Mendelson, the founder of Avalere Health, a consulting firm.
Humana reported that their net income increased to $1.8 billion for the second quarter, which is a huge increase from the $940 million made in the same three months during 2019. Cigna also reported much higher profits.
Insurers are required to use a fixed percentage of the money that they take in from premiums for their customers’ medical expenses under the federal health care law. At least 80% of every dollar that they collect in premiums from small businesses and individuals on healthcare, and 85 cents per dollar for large employers must be spent, the remaining 15-20% is all the insurance companies are allowed to spend on administrative costs like overhead, marketing, and to keep as profit under the Affordable Care Act; any additional revenues are to returned to the consumers as rebates.
Currently the insurers are spending far lower portions of their premium revenues on customer healthcare costs, this translates into millions of dollars that some lawmakers and advocates say should be going back to consumer pocketbooks, by law. CVS for example reported that their medical benefits ratio is 70% for the quarter compared to 84% this time last year.
Insurers have had to pay out billions of dollars in rebates in recent years, currently employers and individuals are estimated to possibly be receiving $2.7 billion in rebates for this year under Obamacare, but this number does not include 2020 amounts according to a Kaiser Family Foundation analysis. Those who had health insurance through the ACA last year could get a rebate of $420 on person on average.
These rebates should eventually make it back to the consumers. Although the federal government is encouraging companies to speed up the rebate process this year, the law gives companies a three year window to calculate how much to return to help avoid any mistakes that might have been made in setting rates or if they experienced any unexpected expenses. This means that Americans should not count on getting their rebate from this year’s burgeoning insurance profits anytime soon.
The financial outlook for 2020 is still uncertain given the state to state differences in America, with potentially new vaccines and treatments being seen in trials that may or may not be here within the upcoming months. Additionally those who have postponed getting medical attention may soon return to their doctor’s offices and submit more bills for coverage.
Insurance companies suggest that they are trying to be of help and to be a part of the solution with actions such as waiving co-payments for testing and treatment for COVID-19 and telemedicine visits, some of which the government has mandated to be covered. Companies also suggest that they are spending millions of dollars on efforts ranging from giving small businesses a break on monthly premiums to paying some physicians in advance. Some executives are quick to point out that they have taken steps to help calm the worries of Americans who are overwhelmed by the outbreak.
Even non-profit insurers such as most of the Blue Cross plans offered in individual states are experiencing increased profit margins. Although they are subject to the same ACA rules and must pay out rebates, they are allowed to put any additional surplus into their capital reserves as they almost never have enough reserves, and the regulators don’t really require insurers to spend down their reserves.
Some companies might even have a higher profit margin than what is being experienced, as some have large networks of doctors and other healthcare businesses in addition to the massive pharmacy benefit manager they own. There really is no limit on how much these company units can make, and many units sell their services directly to the insurer. As such the profits being reported really don’t “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. “You’re not going to negotiate with your sister company very robustly.”
“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. “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 haven’t been.”
