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Health insurance companies profiting under the PPACA

January 13, 2012

A new report out from Bloomberg Government, Despite Predictions, Health Insurers Prosper Under Overhaul, confirms many of the predictions I have made in on this blog about the positive impact the Patient Assistance and Affordable Care Act (ACA) would have on the insurance industry. I have made these predictions not just because they were obvious if you looked at the facts, but because bogus health care reform groups like Health Care for America Now, Health Access, and Families USA, and other groups involved with health care reform like SEIU, continue to push for ACA implementation by claiming it’s a blow to health insurance companies. News articles discussing this report and these groups also continue to overstate insurance industry opposition to the ACA.

According to the Bloomberg report, the largest for-profit insurance companies saw their average operating profit margins expand to 8.24 percent in the six quarters since the overhaul became law, compared with 6.88 percent for the 18 months before it was passed. Although not focused on the (nominally) non-profit insurers like Blue Cross, the report notes that “the recent performance of the largest nonprofit … plans closely parallels that of the largest publicly traded insurers”. Their future strategic plans assume the full implementation of the ACA.

In an earlier post about the health care reform law, I showed that the number of people under 65 covered by private health insurance in the US has declined significantly since 1978. Before the ACA this continuing loss of customers represented a large threat to future revenue growth for insurance companies. When health care reform became a political possibility, all the medical care related industries went to Washington to get the biggest slice of the reform pie for themselves. In the end, the biggest winner was the pharmaceutical companies, but the insurance industry was well taken care of. In exchange for some limited regulations in the individual insurance market, regulations similar to how insurance works in the group market (companies providing insurance as an employment benefit), the insurance industry was handed a massive increase in customers. These new customers come from 3 pools (individual purchasers via the individual mandate, Medicare, and Medicaid), but in all cases the expansion is the result of public funds (taxes collected by the government) being used to subsidize or fully pay for the purchase of private insurance. In essence, instead of the government and individuals paying directly for actual health services, a greater percentage of the increasing total amount spent on health services in the US will now pass through health insurance companies before being used to purchase goods and services.

Because the individual mandate + federal subsidy portion of the ACA won’t be implemented until 2014, most of the increase in profits comes from expanding contracts under the Medicare and Medicaid programs.

…quarterly revenue from Medicare, the $525 billion federal health program for the elderly and disabled, increased by one third, to $16.39 billion, for the four insurers that reported figures, the study shows. Medicaid revenue more than doubled to $4.11 billion.

The companies run managed-care plans for Medicare that may see revenue rise by $10 billion by 2015 as more baby boomers retire, industry analysts have said. The insurers also administer benefits for Medicaid, which is being expanded under the health-care law starting in 2014 to cover more uninsured people. States have turned to private plans to manage Medicaid caseloads and help control health spending.

Health plans will be able to bid on an estimated $40 billion in state Medicaid contracts from now to 2014, the study found.

There is an important point in the report about the convergence going on in the US health care between the program for those over 65, Medicare, which used to be a public single payer system, and health care for everyone else. Medicare has been increasingly privatized so that the government often doesn’t directly pay providers, but passes the money through the Medicare Advantage program of private insurers. Medicaid, the program for the poor,  has undergone a similar privatization process. After 2014, people who purchase insurance by themselves will be assisted by state government exchanges to purchase a private plan with help from federal subsidies. The ACA essentially establishes “Medicare Advantage for All” starting in 2014.

On the face of it, this expansion (of revenues from Medicare) has little to do with the overhaul law. Medicare serves those 65 and older while the overhaul focuses overwhelmingly on health care for the under-65 population. But the health-care systems for the two groups are essentially the same. The overhaul law seeks, among other things, to recast that system and encourage care for both groups that is better managed, of higher quality and cheaper. As will be seen, executives with the large insurers recognize the link and characterize their companies’ Medicare Advantage expansions as part of a broad set of moves intended to prepare the firms to operate in a markedly different health-care sector after 2014.

Of course, that “higher quality  and cheaper” claim is corporate-speak bullshit both because health care in this country hasn’t produced good health and there is no evidence that this new system will reduce the outrageous costs of health care in the US.

The Bloomberg report also notes that a portion of the increase in profits comes from people using less health care services during the recession. These are people with insurance who put off getting care because they are tightening their belts and decide they can’t afford the co-pays or deductibles they have to pay under their particular plan. This trend will reverse when and if the economy improves and if co-pays and deductibles don’t increase.

The report, and news articles about it, along with Health Care for America Now, et al, vastly overstate insurance industry opposition to the health care reform law. Yes, they put an obscene amount of money into lobbying, but most of that was to get the best deal, not to oppose the reform outright. To support its claim that insurance companies opposed the ACA the article and the report point to a contribution of  “$86.2 million (given) to the U.S. Chamber of Commerce to oppose the law after Obama administration officials criticized the plans for enriching themselves by raising customer premiums”.

This ignores the whole context and sequence of events leading up to this donation. Early on in the process the main goal of America’s Health Insurance Plans (AHIP), the industry lobby,was to prevent the enactment of the Public Option. Once that was out of the picture, and they had gotten the individual mandate and government subsidies they wanted, much of their PR campaign was aimed toward convincing the public that health care reform was a good thing. In 2008, before the contribution to the Chamber, AHIP formed an astroturf health care reform  campaign called The Campaign for an American Solution. Unlike Pharma publicly getting in bed with the reform effort right from the start, the insurance companies took a more “inside/outside” strategy and probably ended up being the public bad guy because of it. In order to package the corporate welfare in the bill as “health care reform” the Democrats’ PR strategy made big bad insurance companies the enemy and emphasized the increased regulations mentioned above to appeal to the public. As this PR strategy ramped up in 2009 and it became clear that private market regulations were going to have to be in the bill to get any public support, that’s when the Chamber donation was made.

Finally, this report once again confirms that citizen’s voices were completely ignored in the health care reform process. The real debate wasn’t between people with different opinions about how to achieve better health care, but between corporate interests trying to get the most out of the so-called reform. This is what activists mean when we say that corporations have taken over the government. So-called progressives can ignore this fact, and continue to argue that we vote and lobby for change, but at this point it is clear that they must be either just plain stupid or they have chosen which side they are on.

I may need to add a new blog post category to use as the PPACA is implemented called “I told you so.”

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