It's Way Past Time We Stopped Deluding Ourselves About Private Health Insurers

Folks, we are guilty of magical thinking. We've fallen for insurers' deception and misdirection, hook, line and sinker. And many of us can't be persuaded that we are being duped. Meanwhile, the shareholders of the big for-profits are laughing all the way to the bank. Every single day.
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Health Insurance Claim Form -- Shallow Depth of Field
Health Insurance Claim Form -- Shallow Depth of Field

I didn't think it was possible for me to get more disgusted with the industry I used to be a cheerleader for, but I was wrong.

Health insurers--more specifically, the big for-profit health insurers that want to get even bigger through two pending mega-mergers (Anthem wants to buy Cigna and Aetna wants to buy Humana)--once again are demonstrating that nothing--absolutely nothing--is more important to them than making their rich shareholders even richer.

If that means making it more difficult for low- and middle-income Americans to get the medical care they need, so be it. "Too bad, so sad," to use a phrase one of my former colleagues used to say when people complained about the way health insurers routinely screw their customers.

What turned my stomach today and compelled me to write this were comments Aetna's executives made during a call with Wall Street financial analysts (who else?) following the release of the company's second quarter 2016 profits.

Here's the bottom line: Aetna made significantly more money between April 1 and June 30 of this year than it made during the same period last year--far more than even those Wall Street analysts had expected (in other words, the profit "exceeded their expectations"). But Aetna executives said that because some of the people enrolled in the Obamacare exchanges were sicker than they had anticipated, consequently making it necessary for them to pay more in medical claims than they had wanted to pay--it was thinking about pulling out of a lot--maybe even most--of the Obamacare markets next year.

It was by most measures a stellar quarter for Aetna, the country's third largest insurer. Both revenue and profits were up considerably over the same period a year ago. Aetna's operating earnings increased 8.5%, from $722.1 million during the second quarter of 2015 to $783.3 million in the second quarter this year. Total revenues for the quarter also increased handsomely, to just a few bucks shy of $16 billion.

On a per share basis, the company's operating earnings blew way past analysts' expectations, jumping from $2.05 a share during the second quarter of 2015 to $2.21 this year. Analysts had expected it to come in at $2.12. It's not often that a company beats analysts' forecasts by almost a dime per share.

As for the company's growth in revenues, Aetna said it "was primarily due to higher Health Care premium yields and membership growth in Aetna's Government business, partly offset by membership declines in Aetna's Commercial Insured products."

Translation: The company was able to hike its customers' premiums (enough to more than offset what it had to pay out, overall, to cover those customers' medical care), and it got significantly more money from taxpayers (that would be you and me) via the government's Medicare and Medicaid programs, which have become big cash-cows for Aetna and many other insurers.

In fact, it is Aetna's government business that is the only segment that's growing. Aetna and most of the other for-profit insurers have been losing private-paying customers on a regular basis for some time. But not to worry. As long as Uncle Sam has the Medicare and Medicaid faucets wide open and flowing straight into the insurers' bank accounts, they couldn't care less.

Here are a couple of important details you have to dig through Aetna's filings to find (and which I haven't seen reported by any other media): The company lost 1,184,000 commercial (private paying) enrollees (members) between June 30, 2015, and June 30, 2016, but it gained 487,000 Medicare Advantage, Medicare Supplement and Medicaid enrollees during that time.

That's a net loss of approximately 700,000 members. Think of it this way: Aetna saw its revenues increase 5%--and its profits increase more than 8%--while providing coverage for close to three-quarters of a million fewer people.

Despite all this, despite all of Aetna's membership growth and most of its profits coming from the government, the company's executives say they simply can't deal with all those Obamacare enrollees needing so much care.

Here's what galls me so much about this: many if not most of the people who get their coverage through the Obamacare exchanges could not afford to buy coverage from Aetna before the Affordable Care Act was passed--and many of those folks couldn't buy it AT ANY PRICE because of Aetna's and just about every other insurers' practice of declaring millions of people UNINSURABLE because of preexisting conditions.

Remember those good old days? Before Obamacare, a number of insurers routinely turned down a third of their applicants--some insurers turned down even more--because the applicants had been sick in the past or had born with a congenital condition. Most of those unlucky Americans had no option other than to remain in the ranks of the uninsured and forgo medical care they needed.

When Obamacare was signed into law in 2010, 50 million of us were uninsured, and many of us had been BLACKBALLED by Aetna and other insurers.

Is it little wonder, then, that many of these newly insured folks, who at long last are able to go to the doctor and pick up the prescriptions their doctors prescribe, would cost a little more than the healthier people private insurance companies prefer as customers? It's too bad, so sad, isn't it, that Aetna is finally having to part with some of its premium revenue to pay for their care.

But Aetna, which had 838,000 Obamacare enrollees at the end of June, is not going to put up with this state of affairs much longer, according to CEO Mark Bertolini (who I know from my days in the industry. We both worked for Cigna before he left for Aetna and I left for good).

" light of updated 2016 projections for our individual products and the significant structural challenges facing the public (Obamacare) exchanges, we intend to withdraw all of our 2017 public exchange expansion plans, and are undertaking a complete evaluation of future participation in our current 15-state footprint," Bertolini was quoted as saying in Aetna's earnings press release today.

Aetna is certainly not alone. The two for-profit insurers that are even bigger than it is, UnitedHealthcare and Anthem, have said essentially the same thing.

Aetna and the other insurers have protested loudly about the rapidly increasing cost of prescription medications, and the company's executives today singled out rising pharmacy costs as a big reason for their having to shell out more than expected to cover their Obamacare enrollees' care.

I'm not the least bit surprised. Here's why: the country's private health insurers have been doing a lousy job of controlling medical expenses for many years. It is the big failure of our multi-payer system that insurance company executives hope we will never catch on to.

The truth: Because we have many private insurers, none of them--not even the big ones like Aetna--have enough leverage with drug companies and huge hospital systems to strike a decent bargain on behalf of their customers. Yet we continue to be deceived by industry propagandists like I used to be and hold as a tenet of faith that competition among our many insurers will somehow magically control costs. (What insurers actually do is try to predict how much they think medical costs will rise in the future and jack up their premiums a few percentage points above that to ensure a profit.)

Folks, we are guilty of magical thinking. We've fallen for insurers' deception and misdirection, hook, line and sinker. And, to the financial benefit of the industry's executives and institutional investors, many of us can't be persuaded that we are being duped. Meanwhile, the shareholders of the big for-profits are laughing all the way to the bank. Every single day.

Post note: Aetna's shareholders really liked the company's second quarter numbers and what the executives had to say. Aetna's share price closed at $115.71, up $1.26 from Monday's close. During the Obama years in the White House, the company's shareholders (including executives like Mark Bertolini) have become exceedingly richer. Between April 1, 2009, and today, Aetna's share price has increased 525%. Any interest among the shareholders to share some of that wealth with folks who are struggling to get the care they need? Are you crazy?

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