PRIVATIZING MEDICARE, Pt. III--INSURANCE COMPANIES, TAXPAYER $, SECRECY & WASTEFULNESS
Sat Oct 14, 2006 at 05:07:51 PM PDT
The program rejects the link to Part I. It is included in Part II.
Part II
I had expected to devote this installment of the series to an examination of the financial disclosures of various private health insurance companies participating in the Medicare Advantage program (the official name of the system of private plans established by Congress to provide Medicare services). I hoped to be able to determine how profitable "the new Medicare" was to the companies.
Several questions had emerged from my previous research: To what extent did the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) improve the profitability of private health insurance companies? Were their profits greater after they implemented the changes permitted by the Act than before? More broadly, was there any truth to the suspicion that the MMA gave the companies a needed increase in business at a time when they were losing private business as companies stopped providing health insurance to their employees? Was the MMA a partial bail-out of private insurance companies?
I am neither an accountant nor a financial analyst, so I am unable to subject the available financial disclosures to a professional analysis. I have, however, read both the annual and quarterly reports available on the Security and Exchange Commission's Edgar database and the quarterly conference calls companies hold with brokerage analysts [Audio recordings available on company web sites; transcripts available in Fair Disclosure Wire, accessible on various paid database services].
As I examined the disclosures for United Health Group, Humana, WellPoint, and several others, it became clear that it was impossible to answer the above questions. United Health, a major Medicare provider, for example gives absolutely no data concerning its Medicare business. Its agreement with AARP, the organization that markets its plan, apparently provides that all revenue and most losses be paid into or from a reserve fund dedicated to the members of the insurance plan. It does not affect United's results; therefore, it is not reported.
WellPoint is the largest health insurance company, in terms of the number of members, in the nation. But its Medicare revenue amounted to only 4% of its total in 2005. Moreover, it reports its Medicare activities as part of its "healthcare segment", which includes its commercial, individual and government insurance activities. It is thus impossible to determine the contribution of Medicare to its overall operations. Its 2006 quarterly reports tell nothing about the degree to which it expanded or contracted those activities.
Humana is a major player in the Medicare market, with 49% of its First Quarter 2006 premiums and fees deriving from such plans and 32% of its 2005 revenues deriving from Medicare Advantage. In 2004 it derived 24% of revenues from that source, and in 2003 21% of revenues came from that Medicare. It is clear that the Medicare Advantage and Part D prescription benefit programs have benefited Humana. But it is not possible to determine what portion of that revenue flowed through the organization to become profit.
I am familiar with Family USA's report stating that Medicare has been a substantial money-maker for each of the companies mentioned above. I greatly respect their work, but must disagree with them on this. The evidence from the disclosures shows that only Humana certainly benefited from Medicare. The substantial increases in revenue and earnings reported by United Healthcare and WellPoint could easily be accounted for by major acquisitions each of them made at the end of 2005.
If public financial disclosures do not reveal the degree to which the MMA contributed to health insurance profits, they do demonstrate the wastefulness of private insurance companies as conduits of taxpayer money dedicated to the provision of healthcare services to seniors and people with disabilities. Part I of this series described how capitation payments (fixed amounts paid to plans for each member they enroll) to private insurance companies came to be higher than the average cost of Medicare beneficiaries in the geographic area served by the plan. Private insurance plans, therefore, are paid more to begin with than the cost of beneficiaries in traditional fee-for-service Medicare.
When one examines the few financial disclosures that make it possible to determine Medicare receipts and expenditures (Humana will be the example used here), one finds that an additional 14% of Medicare revenues goes to administration, sales costs, other overhead expenses and profit. It is generally accepted that the federal government spends 1-2% of Medicare funds on administration of the traditional fee-for-service program.
Those who advocate turning Medicare over to private insurance companies argue that such a policy will save the program money. Clearly the current proliferation of private plans does not do so. So one must ask what the true goal of the privatizers is.
One conclusion is that they want to establish an institutional structure that will allow them to channel the vast amounts of tax proceeds collected for the Medicare program directly into the coffers of the private health insurance companies. There, the funds move beyond any kind of public control. They become another stream of revenue, the disposition of which is determined by the business needs of private companies. Moreover, under the pretext that many internal operations of private businesses are proprietary, the use of these funds will not be subject to public oversight.
A related goal is to convert Medicare from a government administered program to one in which the government might establish minimum standards for private Medicare plans and would certainly establish a fixed per-beneficiary contribution of taxpayer money to those plans. The contribution could change at any time Congress and the Executive agreed. Total beneficiary costs could change whenever the private insurance companies decided change was necessary. Payments required of individual beneficiaries would, therefore, be determined by the unpredictable interaction between political and business exigencies. Private health insurance companies could withdraw from the market or change the services they offer at any time, leaving beneficiaries to fend for themselves in a wilderness of plans, each offering different combinations of benefits at different prices.
But the free market ideologues would be happy. They would have diverted billions of taxpayer dollars into the coffers of some of the United State's largest corporations. They would have taken one more large step toward the disempowering of the US federal government and one more large step toward insulating US health care delivery policy from the influence of public demands for change.
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