Reframing the Debate to Make Health Insurers Look Poor

Wendell Potter, CMD's insurance industry insiderIn 2010, the U.S. Census Bureau delivered the troubling but hardly shocking news that almost 51 million Americans -- nearly one out of every six of us -- had fallen into the ranks of the uninsured. If you think that news would also be troubling for health insurance companies, think again. While the country was struggling to emerge from a recession, and more and more of us were struggling with no medical coverage, the big for-profit insurance companies were rolling in dough.

Over the past few weeks, UnitedHealth, WellPoint, Aetna, CIGNA and Humana reported fourth quarter 2010 earnings, and all but Humana exceeded Wall Street's profit expectations, most by wide margins. The combined earnings of just those five companies were more than $11.7 billion last year, which was 17 percent more than they made in 2009. Since the end of 2008, their earnings have increased a Wall Street-pleasing 51 percent. Just imagine how much more they would have been able to reward their shareholders if the economy had been running on all cylinders.In fact, 2010 will go down in the history books as one of the most profitable ever for the five biggest for-profit health insurers.

In conference calls with financial analysts, executives of those companies tried to explain their embarrassment of riches by suggesting that fewer people went to the doctor last year because the flu season was milder than expected.

As someone who helped write insurance company earnings reports, I can tell you that such an explanation doesn't pass the sniff test. In my nearly 20 years in the industry, I never saw those companies' profits spike like they did last year just because fewer people came down with the flu.

So how did they manage to make that much money? By refusing to sell insurance to many people who need it most, by denying coverage for many procedures doctors ordered for their patients, and by achieving one of their most important strategic goals: shifting more of the cost of care, even if we're insured, from them to us.

Insurers embarked on a strategy several years ago of moving their policyholders out of plans with comparatively modest co-payments and into high-deductible plans, which require people to pay thousands of dollars for care out of their own pockets before their insurance coverage kicks in.

Insurers' PR Tactic: Reframe the Debate

Insurers have been on a mission for several years to "migrate" people into these plans, which they euphemistically call "consumer-driven" or "consumer-directed." This forced migration really picked up steam last year. According to America's Health Insurance Plans (AHIP), the industry's lobbying group, the number of people enrolled in high-deductible plans rose 25 percent from 2009 to 2010. Millions of other Americans are now in plans with skimpier benefits. As a result, insurers last year were able to avoid paying many claims they would have paid in the past.

To deflect attention away from the insurers' profits and to talk us into believing exactly the opposite of what is really happening, the industry's cheerleaders and apologists are using a PR trick known as "reframing." (Companies frequently call on their allies and trade associations to do the reframing when their own spokespeople don't have the credibility to pull it off.)

One of the insurance industry's most reliable allies, Sally C. Pipes of the conservative think tank Pacific Research Institute, attempted in a February 24 column in Forbes magazine to suggest that insurers spend so much of their revenues paying claims they're just barely staying afloat. Forcing insurers to spend at least 80 percent of premium revenue on their policyholders' medical care, as the health care reform law requires, would surely push them into the red and eventually out of business. Under the headline, "ObamaCare Is Starting to Bleed Insurers Dry," Pipes told us that the health insurance sector is among the least profitable in America -- "with a mere 2.2 percent profit margin."

Just a little more than a week later, Avik Roy, an equity research analyst at Monness, Crespi, Hardt & Co., wrote in the same magazine, apparently unaware of Pipes' revelation, that 2010 profit margins for publicly traded health insurers averaged "a measly 4 percent."

As a look at the financial performance of the big five insurers reveals, both Pipes and Roy appear to be trying to pull one over on us. According to YAHOO! Finance, UnitedHealth's profit margin last year was 4.92; WellPoint's was 4.91; Aetna's was 5.16; and CIGNA's was 6.35. The profit margin for Humana, the runt of the bunch, was a "mere" 3.25.

Those numbers do indeed pale when compared to the profit margins of cigarette makers, which, according to Roy, average 20 percent. But they are on par with some of the biggest and best-known companies that sell us groceries and other necessities. Walmart's and Target's profit margins were a mere 3.89 and 4.33 percent respectively last year. Kroger's was a measly 1.36 percent.

Still, profit margins are not the best indicator of financial success. Return on equity (ROE), which measures profitability by disclosing how much profit a corporation generates with the money shareholders have invested, is actually a much better measure of how well publicly-traded companies are meeting Wall Street's expectations.

The return on equity of the big five insurers last year ranged from 11.86 percent for WellPoint to 22.35 percent for CIGNA, according to YAHOO! Finance. Cigarette maker R.J. Reynolds' return on equity, by comparison, was a mere 20.43 percent.

America's Health Insurance Plans (AHIP), the insurance trade group, tries to reframe the profitability of the industry in an equally deceptive way. "For every dollar spent on health care in America,' says AHIP spokesman Robert Zirkelbach, "less than one penny goes toward health care profits."

Health Insurers Duck Blame for High Cost of Health Care

Well, considering that Americans spent more than $2.5 trillion on health care last year -- about 17 percent of GDP and more per person than any other country except East Timor -- shareholders are making out pretty darn good with that penny. Wall Street is so happy with the health insurance sector, in fact, that the stock prices for every one of the big five are now trading at or near their 52-week highs. The average stock price for the companies has increased 20 percent since this time last year. That is a very handsome return on investment in my book.

All of this "reframing" by AHIP and the industry's allies is not an innocuous example of how numbers can be sliced and diced to mislead the public. It is being done for the sole purpose of convincing us that insurers are blameless when it comes to the high cost of health care and the rising number of people without coverage, or adequate coverage, in the United States.

The reality is that the standard operating procedures of these and other insurers, which make it possible for them to reward their shareholders so well, have created some of our health care system's most intractable problems.

In a relentless quest for profits, insurers dump sick policyholders from their rolls, refuse to sell coverage to millions of people with pre-existing conditions, force us to pay more for care out of our pockets, strip benefits out of our plans, and routinely deny coverage for treatments that doctors order for their patients.

The consequences of these practices -- all of which "ObamaCare" tries to do something about -- are by no means benign. An estimated 45,000 Americans die every year because they don't have insurance.

So the next time you hear an insurance industry flack or apologist complain about those "measly" profit margins, don't buy it. Their "reframing" is nothing more than an attempt to take your mind off the tragedies these companies cause for so many Americans every single day.


Thanks for all you do, Mr. Potter. We met briefly at your last stop in Denver. I was the Medical Director for Aetna HealthPlans of Colorado from 1994-7. At that time Aetna merged with US HealthCare, and Aetna had a culture shift requiring anyone with a sense of what is good for patients and doctors had to leave, which I did. Now I am convinced that the entire private insurance industry must go. They are still not only alive, but doing extremely well, thank you. I look forward to your appearance at the Colorado Health Care Day of Action later this month. I'll stop by to say hello. Please keep up the good fight. Eventually the U.S. will do the right thing, after we've tried everything else. Bruce Madison MD MPH

As a health care provider, I echo Dr. Madison's sentiments. I only pray that it does not take a complete economic collapse for this country to go to single payer, and relegate the insurance industry to the scrap heap. They have done an excellent job of manipulating public opinion thus far. Mr. Potter, I also thank you for all of your work as an advocate for the patient/health care consumer. Too many of us, even among the insured, do not realize that we are one illness, job loss, or accident away from financial devastation.Only in America, does one fear losing their home should they have the audacity to become sick. I would love to make your excellent book required reading for anyone who remains unconvinced that Big Insurance has us by our collective throat. You are indeed a brave man.