Hold Health Insurers Accountable and those Three Elephants in the Room

Congratulations to Consumer Watch Dog and their Justify Rates campaign! If you are one of the 800,000 California voters who signed the petition, thanks for lending your support to get “The Insurance Rate Public Justification and Accountability Act” on the ballot for the November election. Our own state legislature has refused to take action on this issue for ten years (well, what can we expect, health insurance companies are among California’s biggest-spending corporate lobbyists).

This initiative will subject health insurance rates to the same transparency and accountability that already apply to auto insurance and home insurance rates in California. “Twenty-four years ago, ignored by a legislature beholden to insurance lobbyists, California voters took matters into their own hands and passed Proposition 103  to require auto, home and business insurers to open their books to public scrutiny and justify their rates before they took effect,” said  Harvey Rosenfield, founder and Chairman of Consumer Watchdog Campaign. Prop. 103’s rate regulation has saved drivers in California $62 billion on their auto insurance bills since it’s passage.

 In the last decade health insurance premiums in California have gone up one hundred fifty-three percent.  During that time inflation rose just twenty- nine percent, according to the California HealthCare Foundation.  A one hundred twenty- four per cent difference that isn’t inflation:    

 Source: California Healthcare Foundation

 Did you know that health insurance companies are exempt from anti-trust laws? Under a 1945  law, The McCarran-Ferguson Act,  health insurance companies are regulated by state governments to prevent collusion, price-fixing and other anti-competitive behavior. Much has changed since 1945, mostly lots of money to buy laws to help the once not-for-profit insurance companies now avidly for profit. Also, insurance companies have consolidated and now cross state lines. Currently 35 states have the power to reject  unjustified health insurance rate increases, but California does not.

“Only four insurance companies control 71% of the California market, and they set premiums in secret, behind closed doors. “(Consumer Watchdog)

These four insurance companies –  Anthem Blue Cross, Kaiser Foundation Health Plan, Inc., Health Net, Inc., and Blue Shield of California control seventy-one percent of the market. With market consolidation,  consumers have fewer choices than we did ten years ago.

These same insurance companies attacked Consumer Watchdog as “a special interest group”. Their press release acknowledges in the fine print “Paid for by Anthem Blue Cross, Kaiser Foundation Health Plan, Inc., Health Net, Inc., and Blue Shield of California.” Our premium dollars put to good use. Maybe they are just considered donations.

Health care generated $35.7 million in lobbyist  spending in 2011, more than any other industry in California, Kaiser was the largest spender at $3.5 million. Get ready for the Big  Media Blitz before the initiative is voted on in November.

Three elephants in the room have to be addressed. One –  health insurance companies say health costs are soaring. Inflation is rampant. But Ben Bernanke, the head of the U.S. Fed, says we don’t have any inflation (well, we can’t actually believe what he says). As stated earlier inflation accounts for only twenty-nine percent of the rate hikes in the last ten years. WellPoint and others claim premium increases are necessary given the rise in health care costs.  While rising health care costs are a known problem with our broken health care system, some of the premium increases requested by insurance companies are 5 to 10 times larger than the growth rate in national health spending. Last year health insurance companies reported record profits for the third year in a row. Through the recession and its aftermath from 2008 to 2010, combined profits for UnitedHealth Group Inc., WellPoint Inc., Aetna Inc., Cigna Corp. and Humana Inc. increased a breathtaking fifty-one percent. Last year alone, the five companies’ combined profits grew seventeen percent, excluding a one-time $2.2 billion gain from the 2009 sale of a WellPoint subsidiary.

Elephant number Two – the illusion of a free market economy.  In a country founded on the principles of capitalism and free market where are they? Where is the competition?  Where are all the choices? Only in a public relations mis-information campaign does that reality exist.

Elephant number three – what to do with those breathtaking profits? Make the health system run more efficiently? Reduce premiums? – No, they “repurchase” or buy back shares of their stock.

Corporate profits are necessary to fund investments to generate higher quality, lower cost goods and services. But that is not how the largest corporate health insurers have been using their profits over the past decade. Instead, virtually all of their profits have been spent on buying  back their own stock for the sole purpose of jacking up their stock prices. Keep in mind that the money to fund these buy backs comes from our premium payments.

When a company buys back shares of their own stock, those shares are “retired,” meaning fewer shares  are outstanding. Reducing the number of shares available for purchase changes the mathematical equation used to determine the Earnings Per Share (EPS). With fewer outstanding shares the reduction gives the EPS a boost. The more shares you buy back, the bigger the boost and  -“Abracadabra, Poof! Instant profit boost, and richer executives. When CIGNA announced that its adjusted income from operations for the first quarter of 2011 was $1.37 per share compared to $1.01 per share during the same quarter in 2010, the company’s stock price hit a 52-week high. The EPS was way more than investors had expected. However, you had to read all the way to the bottom of page two of CIGNA’s earnings release to learn that one of the ways the company was able to achieve such an impressive increase in the EPS was by buying back a whole lot of the company’s share”.

These buybacks benefit the top executives at  insurance companies since their salary packages contain stock options.  And dividend payments from stock ownership, taxable at fifteen percent. Health insurance executives have the advantage of being some of the highest paid corporate executives in the United States.

The advocacy group Health Care for America Now (HCAN) discovered while compiling data of health insurers’ earnings that between 2003 and 2010, the five largest for-profit insurance firms spent $64.1 billion on share buybacks.

For the staggering details, click on this link: Insurance Executives: A Big Part of Our Health Care Problem

 Vote in November, if we take action, our country will be a better place. Lets not allow them to use our premiums against us. Democracy is not a spectator sport, it only works if we vote. “It works if You work it!”

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One Response to Hold Health Insurers Accountable and those Three Elephants in the Room

  1. Larry Fritzlan says:

    Karla, as usual, you have turned on the lights for all of us to see. And what do we see? We see that the Emperor has no cloths on! These crooks, the insurance companies, the lobbyists, and the “legislators” have colluded in a corrupt and rigged game to support their ego driven greed and need for power and money. They all have a choice. One: Stand up, admit their wrongs, and make if right. Two: stand guilty of the conspiracy to harm their very own children, us, and the future.

    Thank you for your clarity, courage, and effort.

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