HCAN to Health Insurers: Reduce Rates Now for Struggling Families, Businesses

Washington, DC—With the health insurance industry reporting record profits while continuing to sock consumers with unjustified and excessive rate hikes, Health Care for America Now (HCAN) is demanding that insurers accelerate rebates required by the Affordable Care Act and immediately give back billions in premium overcharges to families and businesses. 

“While America’s families and businesses are struggling in this tough economy, insurance companies are making money hand over fist,” said HCAN Executive Director Ethan Rome. “They’re making record profits by spending less on health care and playing financial games to boost their earnings and build up billions of dollars in cash reserves. Premiums have gone up 131% since 1999. The insurance companies should put an end to their price-gouging and roll back their rates right now.”

Some insurers in California, Connecticut and North Carolina have rolled backed rates, declared premium holidays or issued direct refunds. “The rest of the industry should do the same on a national scale,” Rome said.


According to an analysis by HCAN, the nation’s leading grassroots health care advocacy group, Wall Street-run health insurance companies generated huge profits in the first quarter of this year by charging more and spending much less on patient care.


At the same time, the insurance companies have quietly shifted billions of dollars to Wall Street investors through stock “buybacks” and built capital reserves substantially larger thanrequired by regulators. Meanwhile, despite insurance company claims that rising premiums reflect actual increases in medical costs, their rate hikes have consistently been twice the rate of medical inflation.


Under a consumer protection provision in the Affordable Care Act, the Health and Human Services Department estimates that insurers will owe up to 9 million customers as much as $1.4 billion in 2011 rebates payable next year. The new rule (medical-loss ratio) sets a minimum percentage of premiums (80% for individual and small group plans and 85% for large group plans) that insurers spend on actual medical care instead of wasteful overhead, excessive profits and bloated CEO salaries. Companies that fall short of the minimums must rebate the money to consumers.


“Families and businesses are barely hanging on while the insurance companies are swimming in cash,” Rome said. “There’s no reason to wait. The insurers should start paying consumers their rebates right now.”


See below for more information on insurance company profits.




  First Quarter Shows Big Insurance on Pace to Break Profit Records Again in 2011


First Quarter 2010 Profit (in millions)

First Quarter 2011 Profit (in millions)

First Quarter 2010-2011 Change in Profit (in millions)

Percentage Increase in Profit, First Quarter 2010-2011
































Combined profits for UnitedHealth Group Inc., WellPoint Inc., Aetna Inc., Cigna Corp. and Humana Inc., which provide coverage to one-third of the U.S. population, surged 14% to $3.6 billion in the first quarter. If the trend holds, the five companies will take a record $14.4 billion in profits in 2011. Through the economic recession and its aftermath from 2008 to 2010, combined profits for the five companies increased 51 percent. In 2010, profits grew 17 percent, excluding a one-time $2.2 billion gain from the 2009 sale of a WellPoint subsidiary.


The insurance industry claims to have a low average profit margin of 4.4%, but that vastly understates operating margins at the biggest for-profit companies and lumps them in with margins reported by nonprofit insurers.


The industry’s focus on profit margins is misleading and designed to protect their massive income by shifting attention away from their return on equity—a key gauge of profits as a percentage of the amount invested. That return is 16.1% as of today. By that measure, health insurers are ranked fourth highest of the 16 industries in the health care sector. They also deliver a higher return for investors than cell phone companies, beer companies, mortgage companies, life insurance companies, TV broadcasters, drug store companies or grocery stores.


Insurers defend their wealth by saying that their profits represent less than one penny of every dollar of national health spending, but that is deceptive. One penny of the health care dollar is worth $347 billion over the 10 years ending in 2019.



Health insurance companies bought back $1.8 billion in stock in the first quarter—a practice that economists say is used by top executives to enrich themselves. Since 2003, the five companies have used $66.9 billion in customer premiums to buy back their own stock, rewarding insiders and Wall Street investors, HCAN found. Buybacks do nothing to improve public health, make insurers more efficient or reduce premiums. Their purpose is to boost stock prices by reducing the supply of shares. This benefits CEOs who hold large stakes in their own companies and who get bonuses for guiding share prices upward. So far this year, share prices for the five health insurers have risen 36% to 49%, compared to less than 3% for a broad market index.


The biggest insurers are so profitable now that some recently began paying hundreds of millions of dollars in dividends to shareholders, a move designed to reassure investors that the good times will roll on. WellPoint announced that it plans to pay $400 million in dividends this year, while UnitedHealth plans a dividend of $449 million and Aetna expects to pay $230 million.



In the first quarter of 2011, growth in premiums rapidly outpaced increases in spending on patient care. Cigna led the industry in finding ways to avoid covering actual health care, shifting medical costs to working families and employers through skimpier coverage and higher deductibles. As a result, the share of premiums Cigna spent in the first quarter on medical care (known in industry parlance as the medical-loss ratio) dropped to 77.3%, an extraordinary 5.6 percentage-point decline from 82.9% a year earlier. Aetna trimmed its health care costs, spending 77% of premiums on patient care, down from 81.1%, and Humana reduced its patient-care spending rate by 3.5 percentage points. Insurers used to be free to devote any percentage of premium revenue to lavish CEO pay, marketing, administration, lobbying, the care-denial bureaucracy and claims handling services that foul up one in every five claims. The Affordable Care Act will finally rein them in with rebates that will be payable in 2012.



2009 Full Year Medical Loss Ratio

2010 Full Year Medical Loss Ratio

Full Year Change in Medical
Loss Ratio
(in % Points)

First Quarter 2010 Medical Loss Ratio

First Quarter 2011 Medical Loss Ratio

First Quarter Year-Over-Year Change in Medical Loss Ratio
(in % Points)





































On Dec. 31, the nation’s for-profit and nonprofit health insurance companies were holding $97.3 billion in risk-based capital to cover unexpected medical claims—six times more than state regulators require, according to Citigroup Global Markets. This included $45.3 billion for 14 major for-profit health insurers, and $52.1 billion for nonprofit Blue Cross plans, Citigroup said.



Health Care for America Now is a national grassroots coalition of morethan 1,000 organizations in 46 states representing 30 million people. HCAN led the fight over the past two years to win passage of health reform and to keep Congress from being steamrolled by corporate special interests.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s