Is The Administration Being Too Harsh On Health Insurers?

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"Is The Administration Being Too Harsh On Health Insurers?"

Insurers have responded to the administration’s campaign against recent rate hikes by blaming increasing health care costs, provider cost increases and adverse selection (healthier Americans are dropping coverage) for their premium increases. To hear them tell it, the insurance industry is a low-profit industry that spends just one cent of every premium dollar on administration and strives to reduce costs by encouraging efficiencies. Insurers “do not deserve to be vilified for political purposes,” Robert Zirkelbach, a spokesman for America’s Health Insurance Plans (AHIP) told the AP:

For every dollar spent on health care in America, less than one penny goes toward health plan profits. The focus needs to be on the other 99 cents.

But the argument that insurers run a tight ship is misleading, on several counts, not least of which is the fact that insurers are planning to spend “more than $1 million” not on health care claims — as their justification for the premium hikes would suggest — but “to run television ads on cable stations nationwide beginning in the next few days to push back on the attacks on insurers.”

That $1 million ad fund will presumably come from the one penny that goes towards health care profits. But this too is misleading. Zirkelbach is clever enough to compare the private insurance industry’s administrative spending to national health care expenditures — 45 percent of which includes spending in Medicare, Medicaid and other public programs. In the context of total spending, insurers administrative costs may look small, but compared to the revenues of private insurers, administrative spending is seen as far more substantial. Insurers skim off 15-20 percent of premium dollars for administrative costs and profits which fund TV ad campaigns, Washington lobbyists, lavish company retreats and outlandish CEO salaries.

The top five earning insurance companies averaged profits of $12.2 billion, an increase of $4.4 billion, or 56 percent, from 2008. And in 2008 (the last year for which data was available), CEO compensation for these companies ranged from $3 million to $24 million.” Below is a partial list of insurer/CEO profits:


Insurer: Company Profits 2009: CEO Total Compensation 2008 Or Earlier: CEO 5 Year Compensation:
UnitedHealth Group $3.8 billion $5 million
WellPoint $4.75 billion $4 million
Atena $1.28 billion $38 million $77 million
Humana $1 billion $2 million $56 million
Cigna $1.3 billion $10 million $121 million

Insurer profits increased even in the midst of the current recession. Last week, during a hearing before the House Energy and Commerce Health Subcommittee, WellPoint admitted that it increased premiums to keep up with medical costs and maintain a 2% profit. The company’s 2009 fourth quarter net income “was more than $2.7 billion, a 727 percent increase from the fourth quarter of last year” — even as membership declined by some 4 percent.

Insurer profits are of course just one culprit for increasing premiums, but considering that insurers have been able to increase their returns by purging sicker Americans from the rolls and pulling out of competitive markets, the President’s strong rhetoric is more than justified. The Senate bill will start forcing insurers to earn profit by figuring out ways to deliver quality care more efficiently and they’re not very interested in accepting these changes.

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