Profit Over Wellness

A little birdy dropped this fine piece of testimony in my lap overnight. In it, former CIGNA executive Wendell Potter describes just how important profit is over care in the current healthcare system in the US. From the testimony:

The average family doesn’t understand how Wall Street’s dictates determine whether they will be offered coverage, whether they can keep it, and how much they’ll be charged for it. But, in fact, Wall Street plays a powerful role. The top priority of for-profit companies is to drive up the value of their stock. Stocks fluctuate based on companies’ quarterly reports, which are discussed every three months in conference calls with investors and analysts. On these calls, Wall Street looks investors and analysts look for two key figures: earnings per share and the medical-loss ratio, or medical “benefit” ratio, as the industry now terms it. That is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits.

To win the favor of powerful analysts, for-profit insurers must prove that they made more money during the previous quarter than a year earlier and that the portion of the premium going to medical costs is falling. Even very profitable companies can see sharp declines in stock prices moments after admitting they’ve failed to trim medical costs. I have seen an insurer’s stock price fall 20 percent or more in a single day after executives disclosed that the company had to spend a slightly higher percentage of premiums on medical claims during the quarter than it did during a previous period. The smoking gun was the company’s first-quarter medical loss ratio, which had increased from 77.9% to 79.4% a year later.

All “for profit” companies have a duty to return value or profits to their investors. When the company sells some other commodity, service or product we expect that cost cutting will be a tactic in a larger strategy to ensure that shareholders are rewarded for their investment. This, however, takes an odd turn when the health of a nation is sold as a commodity in such a way that neglects the supposed aim of the company, to provide health insurance. It becomes even more alarming when profit becomes the ONLY motive, leaving insurers few options to positively impact their bottom line.

To help meet Wall Street’s relentless profit expectations, insurers routinely dump policyholders who are less profitable or who get sick. Insurers have several ways to cull the sick from their rolls. One is policy rescission. They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment. Asked directly about this practice just last week in the House Energy and Commerce Committee, executives of three of the nation’s largest health insurers refused to end the practice of cancelling policies for sick enrollees. Why? Because dumping a small number of enrollees can have a big effect on the bottom line. Ten percent of the population accounts for two-thirds of all health care spending. The Energy and Commerce Committee’s investigation into three insurers found that they canceled the coverage of roughly 20,000 people in a five-year period, allowing the companies to avoid paying $300 million in claims.

Maintianing profit levels by purging high risk customers may be a good way to keep investors happy, but it exacerbates the risks to the economy as a whole by increasing the possibility of health related bankruptcies (50% of all personal bankruptcies are at least partially related to debt brought on by medical bills). Further, it is estimated that health insurance costs either have or will overtake profits for most employers, further damaging the economy as a whole.

The rise in health insurance costs has not been met with additional coverage. In fact, many Americans are underinsured and don’t even know it.

There are many ways insurers keep their customers in the dark and purposely mislead them – especially now that insurers have started to aggressively market health plans that charge relatively low premiums for a new brand of policies that often offer only the illusion of comprehensive coverage.

An estimated 25 million Americans are now underinsured for two principle reasons. First, the high deductible plans many of them have been forced to accept – like I was forced to accept at CIGNA – require them to pay more out of their own pockets for medical care, whether they can afford it or not. The trend toward these high-deductible plans alarms many health care experts and state insurance commissioners. As California Lieutenant Governor John Garamendi told the Associated Press in 2005 when he was serving as the state’s insurance commissioner, the movement toward consumer-driven coverage will eventually result in a “death spiral” for managed care plans. This will happen, he said, as consumer-driven plans “cherry-pick” the youngest, healthiest and richest customers while forcing managed care plans to charge more to cover the sickest patients. The result, he predicted, will be more uninsured people.

In selling consumer-driven plans, insurers often try to persuade employers to go “full replacement”, which means forcing all of their employees out of their current plans and into a consumer-driven plan. At least two of the biggest insurers have done just that, to the dismay of many employees who would have preferred to stay in their HMOs and PPOs. Those options were abruptly taken away from them.

Less choice, less care, more cost…sounds like a winning combination for everyone except the people who are buying the coverage. It would be one thing if the consumers knew what was up, but the insurance providers are going out of their way to deceive their customers.

Secondly, the number of uninsured people has increased as more have fallen victim to deceptive marketing practices and bought what essentially is fake insurance. The industry is insistent on being able to retain so-called “benefit design flexibility” so they can continue to market these kinds of often worthless policies. The big insurers have spent millions acquiring companies that specialize in what they call “limited-benefit” plans. An example of such a plan is marketed by one of the big insurers under the name of Starbridge Select. Not only are the benefits extremely limited but the underwriting criteria established by the insurer essentially guarantee big profits. Pre-existing conditions are not covered during the first six months, and the employer must have an annual employee turnover rate of 70 percent or more, so most of the workers don’t even stay on the payroll long enough to use their benefits. The average age of employees must not be higher than 40, and no more than 65 percent of the workforce can be female. Employers don’t pay any of the premiums—the employees pay for everything. As Consumer Reports noted in May, many people who buy limited-benefit policies, which often provide little or no hospitalization, are misled by marketing materials and think they are buying more comprehensive care. In many cases it is not until they actually try to use the policies that they find out they will get little help from the insurer in paying the bills.

With all this in mind it’s baffling that anyone with the best interests of the health of Americans would put up any roadblocks to a public plan. In reality, the primary opponents of this plan are insurance companies already committing a fraud against their customers and the shareholders that benefit financially from this fraud. Unfortunately, some legislators are buying into this fraud. Health insurers are scared to death that they may have to meet or exceed the standards put forth by a plan that actually puts the health of the consumer before profits. But isn’t that what healthcare should be?

As the debate moves forward, it’s incumbent on the American people that we stand up against the deceptive rhetoric and scare tactics of health insurers. Further, it’s important that we make sure our legislators know we don’t just want insurance, but an entire healthcare system overhaul that puts the needs of the sick above the profit motives of shareholders.

If this be socialism, then so be it. Quality affordable healthcare is a right not a privilege. It’s time we get our priorities straight and stop putting the profits of the few over the health of a nation.

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