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Health Insurance Companies Spared From The Worst Recession in 80 Years

By Dr. Sultan Rahaman
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Here is an update on the financial health of the major health insurance companies in America. First of all, I would like to reassure you that the worst economic recession since the great depression has spared the big health insurance companies. An ABC News article back in early 2010 stated, "In the midst of a deep economic recession, America's health insurance companies increased their profits by 56 percent in 2009, a year that saw 2.7 million people lose their private coverage. The nation's five largest for-profit insurers closed 2009 with a combined profit of $12.2 billion, according to a report by the advocacy group Health Care for American Now (HCAN)." 

Now, a year later, a MarketWatch report on health insurance company profits for 2010 states, "Amid calls for repeal of federal health-reform measures and a sunny outlook for insurers, a study released Thursday said that the nation’s five biggest health-benefit carriers saw a double-digit increase in profits during 2010.”  The five largest companies, “collectively increased their profits by 17% last year, on top of a 28% gain achieved in 2009, according to Health Care for America Now (HCAN), which supports reform efforts."

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HCAN also points out that, “the ‘medical-loss ratio (MLR),’ or the percentage of revenue spent on health care was flat at Humana, and declined at the other four companies from 2009 to 2010. The biggest profit maker from 2008 to 2010, Cigna, cut its medical-loss ratio the most — from 83.9% down to 80.1”

However, some relief is coming for healthcare insurance customers. According to HHS.gov, “Under the Affordable Care Act, consumers will receive more value for their premium dollar. New regulations require health insurers to spend 80 to 85 percent of consumers’ premiums on direct care for patients and efforts to improve care quality, rather than on administrative costs, starting in 2011. If they don’t, the insurance companies will be required to provide a rebate to their customers starting in 2012.”

Dr. Nilesh Kalyanaraman is optimistic that, “this should slow the rate of premium increases since a company near an MLR of 80 could only raise rates if the actual costs of care were going up (not just to add to their profit margin).” On the other hand, this may mean that health insurance companies will not be motivated to control the rising cost of medical care. Rising cost of medical care will justify premium increases, which will produce more profits even with a fixed medical loss ratio.

There is a loud call from those at one end of the political spectrum to repeal the Affordable Care Act, which they falsely term a ‘government takeover’. But notice that the health insurance companies have not been a prominent part of this repeal effort to date. It could be that despite the features of the new health reform law to keep premiums fair, which could limit profits, the health insurance companies will in fact do better because of the expansion of coverage for the uninsured. Just imagine, if you can increase your profits in a severe recession with fewer customers, what will 30 million new customers do for your bottom line?

 

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