In years past, a profit result like United HealthCare's 26% increase in the third quarter would spike the stock price. Not so on Tuesday, because investors are worried that insurance companies' profit rocket will slow down next year as health reform requirements kick in. That, in a nutshell, is why the insurance industry is spending tens of millions of lobbying dollars in a battle to cripple the early reforms.
A major showdown starts Wednesday in Orlando, Fla., where the National Association of Insurance Commissioners will vote on regulation of insurance companies' "medical loss ratios," i.e. the percentage of premium revenue that the companies must spend on actual health care. For group policies, which are most of United HealthCare's health insurance business, the required minimum is 85%. But it all comes down to how health care is defined and calculated.
Insurers are fighting tooth and nail to offset low ratios (also known as medical cost ratios) in some states with higher ratios in other, better regulated states, so that the people being cheated will never even know it. They are fighting to deduct every single tax they pay, even on investments, from premium revenue. They are fighting to include advertising messages as "health care." They are threatening to leave whole markets if they don't get their way.
One of the early analyst reports on United Health's profit report noted that much of the company's profit increase came from cutting back on customers' health care. From Morningstar:
Medical costs continue to be the primary driver of higher earnings,
which is unfortunate for investors because various provisions of the
health reform legislation will pressure medical cost ratios in 2011 and
beyond. The consolidated medical cost ratio was 80.1% in the third
quarter and 81% year-to-date. With implementing regulations for health
reform's commercial medical cost ratio floors yet to be finalized,
management declined to offer an outlook for 2011 earnings.
That quarterly medical loss ratio, you'll notice, is way below the 85% insurers would have to meet for group health insurance under health reform. Investors call a higher medical ratio a "deterioriation," which tells you what the insurance industry is really about.
Insurance companies have already succeeded in getting major tax deductions into the medical loss ratio formula. They have successfully redefined their phone hotlines and a other formerly administrative expenses as "health care." They are also issuing one double-digit rate increase after another. But they want more, much more.
If the insurance commissioners don't buckle, the industry will aim its lobbying at the White House.
This is just the start of what leaving the private, for-profit insurance industry in control of health reform will mean. All of us will be required to show proof of insurance, yet the industry will continue to make the maximum possible profit off of every one of us.
The lawsuits across the nation against mandatory insurance are being brought by opponents of any feederal health reform. But they have a message for the rest of us, as my colleagues Jamie Court and Carmen Balber show so well in their Los Angeles Times commentary Tuesday. President Obama should have stuck with the public option in insurance reform, but lacking that, they say, the president owes it to all of us to freeze health insurance rates and use all of his power to get rates regulated in every state. Until then, why should we have to buy a product intended only to make money for investors?