Insurance companies have seen their profits soar by more than 400 percent since 2001.
Jay Rockefeller on Monday, September 21st, 2009 in a column in the newspaper Roll Call
Rockefeller says health insurer profits have risen by 400 percent since 2001
Those who advocate for health care reform have tried to rally the public by portraying insurers as greedy. Sen. Jay Rockefeller, D-W.Va. — a member of the Senate Finance Committee, a key player in the health policy debate — is no exception.
Rockefeller recently wrote an opinion piece for the Capitol Hill newspaper Roll Call in which he said, "Insurance companies have seen their profits soar by more than 400 percent since 2001, while premiums for consumers have doubled." We'll address the first part of this statement in this item; we'll take up the second half in a separate item .
On the first part — health insurer profits — Rockefeller took his numbers from a study sponsored by Health Care for America Now, a liberal group that supports Democratic health care reform efforts. Researchers for HCAN looked at financial data submitted by 10 large, publicly held health insurers to the Securities and Exchange Commission covering the years between 2000 and 2008. The 10 companies are Aetna, Amerigroup, Centene, CIGNA, Coventry, Health Net, Humana, UnitedHealth Group, Universal American Group and WellPoint.
In the past, we have had problems with the data HCAN has used — we rated one claim on health insurance denials False and another on insurance company CEO compensation Barely True — but their data on health insurer profits look sound. We checked a few of HCAN's numbers by looking at some of the original disclosure forms on the SEC Web site and found no notable discrepancies.
Rockefeller's use of the numbers, however, is a different matter. Whether the increase amounts to at least 400 percent depends on which years you choose.
The researchers found that the collective profits of these 10 companies rose from $2.41 billion in 2001 to $12.87 billion in 2007 — a 466 percent increase, meaning that, over that period of time, Rockefeller would be right.
But using the years 2001 through 2008 instead, the data show that profits rose from $2.41 billion to $8.40 billion — a 249 percent increase. That's still a whopping jump, but it's not as high as Rockefeller indicated. The general dropoff in the economy had a lot to do with the lower profits in 2008, said Alex Lawson, a health care researcher for Campaign for America's Future, a liberal group, who co-authored the HCAN study.
Meanwhile, there's another caveat for HCAN's study. The group didn't adjust the profit statistics for corporate takeovers. When big companies absorb smaller ones, the net effect may be to enlarge the profits of the biggest companies (including many of the 10 giants in HCAN's study) even as the total size of the health insurance industry — the broader entity that Rockefeller seemed to be referring to — stays roughly the same. While doing such adjustments would have been logistically difficult, and maybe even impossible, the fact that they weren't done puts limits on how this data can be interpreted.
A health industry analyst, Steve Shubitz of Edward Jones, agreed that consolidation is "a very large part of this overall increase" rather than simply higher profits by the remaining 10 companies. "Of course, these companies have increased profits, too, outside of acquisitions, but nowhere near to the extent that's implied by those stats," Shubitz said.
Lawson acknowledged that the HCAN chart on profits does not address how much of an impact consolidation has made on profits. But he added that the table actually comes from a study that specifically addressed the harm to competition caused by consolidation, so the group hardly ignored that issue. In addition, he defended the decision to use numbers unadjusted for consolidation. "That's what the market reacts to, and that's what they put in their annual report," Lawson said.
The insurance industry, for its part, argues that total health plan profits are less than one penny of the total national health expenditure dollar. "The data is clear that profits are not what is driving rising health care costs," said Robert Zirkelbach, a spokesman for America's Health Insurance Plans, the leading health insurance trade group.
Let's recap. If you carry the data forward to 2008 — an admittedly somewhat atypical year — the increase falls short of Rockefeller's stated 400 percent. Also, the numbers Rockefeller used reflect 10 of the biggest companies as opposed to "insurance companies" in general. On the other hand, the increase exceeded 400 percent for the period 2001 to 2007, and however you slice the numbers, the rise in insurer profits is large indeed. On balance, we rate Rockefeller's statement Half True.