Health insurers watch profits soar as they dump small business customers

Commentary: record stock prices reward investors but leave mom-and-pop firms in the cold



Several million previously uninsured Americans now have coverage because of Obamacare, but it could be argued that the people who have benefited most from the law—at least financially—are the top executives and shareholders of the country’s health insurance companies.

Among those who apparently have not yet benefited much at all, at least so far, are owners of small businesses who would like to keep offering coverage to their employees but can no longer afford it. They can’t afford it because insurers keep jacking their rates up so high every year that more and more of them are dropping employee health benefits altogether.

And let’s be clear, these insurers aren’t suffering. UnitedHealth Group, the largest health insurer, reported last week that it made $10.3 billion in profits in 2014 on revenues of $130.5 billion. Both profits and revenues grew seven percent from 2013.

United impressed Wall Street so much that investors pushed its share price to an all-time high. When the New York Stock Exchange closed last Thursday, United’s share price stood at $113.85, a record.  

To put that in perspective, United’s share price was $30.40 on March 23, 2010, the day President Obama signed the Affordable Care Act into law. Since then, the company’s price per share has increased an astonishing 375 percent. That’s way more than either the Dow Jones or Standard & Poors averages has grown during the same period.

United is always the first of the big six health insurers to report earnings each quarter. When investors like what they hear from United’s executives, they typically go shopping for shares in the other five as well, believing that they, too, will soon report impressive results.

That certainly happened last week. Every one of the big six saw their shares reach or come close to reaching historic highs.  Although they haven’t done quite as well as United, the other five have seen the price of their stock more than double or triple. Health Net’s share price has increased 224 percent since March 2010. Anthem’s is up 238 percent over the same time period.  Aetna’s 290 percent. Cigna’s 305 percent. And Humana’s 309 percent.

Meanwhile, the number of Americans enrolled in health plans offered by small employers continued the steady decline that started years before Obamacare went into effect.

Jeff Alter, chief executive of UnitedHealthcare’s employer and individual business, told Wall Street financial analysts last week that 60-65 percent of the country’s small businesses offered coverage to their workers in the 1990s, either through the big for-profits insurers or nonprofits like many Blue Cross and Blue Shield plans.  Now, he said, it’s down to 50-55 percent. And that trend has been just as pronounced at the nonprofits as it has been at the for-profits.

Alter didn’t offer an explanation for the decline — perhaps because he didn’t want to risk being asked about the continuing industry practice of “purging” or “dumping” unprofitable accounts, especially small business customers. At a small business, if a single employee gets sick and needs expensive treatment, that account can quickly become unprofitable for the employer’s insurer. Unfortunately, Obamacare does little if anything to stop purging.  

Aetna at one point was especially aggressive in dumping unprofitable accounts. The Wall Street Journal reported in 2004 that as part of an effort to boost the bottom line, Aetna spent more than $20 million to install new technology that enabled it to “identify and dump unprofitable corporate accounts.”

A financial analyst at Citigroup last month noted that the decline in small business accounts—or group risk, as this book of business is known in the industry—was especially notable at the country’s nonprofit Blue Cross and Blue Shield plans. Citigroup’s Carl McDonald noted that membership in the Blues’ group risk business fell almost 1 million in 2014, a 6 percent decline. He suggested the possibility that “small group dumping has been more pronounced at the Blues than has been the case at most publicly traded plans.”

One of the insurers McDonald looked at was Blue Cross Blue Shield of Tennessee. Between the first quarter of 2008 and the third quarter of last year, enrollment in that insurer’s group risk business fell almost 20 percent, from 603,918 to 486,010.  Meanwhile, the percentage of premium revenue BCBS of Tennessee devoted to paying claims in its group risk business fell like a rock, from 82.2 percent in 2008 to 73.9 percent in 2014, according to McDonald’s analysis.

The ACA requires insurers to spend at least 80 percent of premiums they collect from individuals and small businesses on actual medical care. If they don’t, those insurers have to send rebates to their customers. BCBS of Tennessee has had to do that for at least the past two years.

Most of the other nonprofit Blues also spent less on care as a percentage of premium revenues in the group risk business at the end of last year than in 2008 (although the change wasn’t as dramatic at most of the other Blues plans as it was in Tennessee). What that indicates to me is that those nonprofit insurers have methodically been “dumping” small businesses with the sickest employees year after year.

You’d hope that with all the new revenue insurers are raking in because of Obamacare, they’d consider giving small business owners and their workers a break.

Don’t hold your breath.

Wendell Potter is the author of Deadly Spin: An Insurance Company Insider Speaks Out on How Corporate PR is Killing Health Care and Deceiving Americans and Obamacare: What’s in It for Me? What Everyone Needs to Know About the Affordable Care Act.

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