Wednesday, May 9, 2018

What Your Carrier Won't Tell You at Renewal - Costs are Down and Carrier Profits Up

The unholy Frankenstein monster that is the leftover, adulterated, selectively enforced remnants of the Patient Protection and Affordable Care Act (PPACA) is working with an almost entirely dysfunctional healthcare system to generate massive profits for insurers in 2018.  While PPACA covered roughly 12 to 15 million of the nation's 40 million uninsured, it did nothing to actually reduce price.

If anything, PPACA made healthcare more expensive by about 2% per year since its inception with its myriad of taxes, fees, penalties and robust benefit mandates.  Alas, for the first time since its passage, we are finally starting to see costs moderate and carriers are back to the kind of record profits they enjoyed prior to 2010.

While policyholders and covered employees are being hammered with a barrage of news media about the runaway costs of healthcare, double digit premium increases and overall demise of the medical insurer model, something peculiar has been occurring over the past four to nine months.  Costs are slowing and carriers are profiting.  But have your renewal increases similarly moderated?  No, in most cases they have not.

Is this the inevitable result of free-market, for-profit healthcare?  Hardly.  We cannot remind our readers enough: we do not have "free-market" healthcare in America.  Instead we have something more like an unholy alliance between a gargantuan, rent-seeking, oligopoly and Big Government.  Recall that in California alone, 70% of all persons are covered by taxpayer-funded healthcare:
Many people assume that the U.S. health care system is primarily supported by private dollars, such as insurance premiums from employer-based coverage, said Gerald Kominski, director of the UCLA Center for Health Policy Research and the study’s lead author. 
But that’s no longer the case, at least in California — mostly because of its massive expansion of Medi-Cal, the state’s version of Medicaid, he said. 
“There’s this myth that we have a mostly privately funded health care system, but we’re approaching a point in which almost three quarters of this system is funded by public money,” Kominski said. “Now a question to ask ourselves is: when do we reach the tipping point and say ‘this is essentially a public system?’” - California Healthline.  
Meanwhile, as we put a bow on the first quarter of 2018, the insurance carrier community is busy funneling another message to investors on Wall Street: business is good!

These two graphs are from Cigna's May 3, 2018 Investor Presentation on slide 18:

And this is a simple smattering of recent investor stories about various carrier revenue and profit performance in 2018:
UnitedHealth Group’s 2018 1st Quarterly Earnings Advanced 28.27%; Surpassed Expectations 
Cigna came out with adjusted earnings per share of $4.11, beating the Zacks Consensus Estimate of $3.37. Earnings also grew 48% year over year. Better-than-expected earnings were primarily driven by revenue growth. 
Health insurer Aetna Inc.’s AET first-quarter 2018 earnings of $3.19 per share beat the Zacks Consensus Estimate of $2.97 by 7.4%. Moreover, the bottom line improved 17.7% from the prior-year quarter
Anthem reported a better-than-expected quarterly profit on in 2018 Q1 as
  • it kept a tight leash on patient payouts, prompting the health insurer to raise its full-year profit forecast 
  • The company said it was prioritizing investments throughout 2018 on infrastructure that can quickly respond to the evolving needs of its customers - a sign it may continue to steer clear of major acquisitions
Health insurer Centene's profit more than doubles in Q1 of 2018. Centene owns the popular California insurer Health Net and focuses primarily on taxpayer funded health plans such as Medicare and Medicaid.

Kaiser Permanente sees record revenue growth in 2017. The not-for-profit Oakland, Calif.-based system, which includes Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals and their subsidiaries, saw its operating revenue jump by $8.1 billion in 2017, a 12.5% boost, mostly thanks to its massive health plan. Operating revenue was $72.7 billion in 2017, compared with $64.6 billion in 2016.
Question?  If carrier costs are only going up 4% to 6.5%, why are your renewals consistently between 9% and 12%?  Yes, some of that is PPACA taxes, but not all of it.  Arm yourself with these facts and the carrier's investor press releases as you head into your renewal season.  The profitability of your business depends on it. 

Armstrong and Getty covered this story at length during their third hour on May 10, 2018, here is that audio: