I've received several emails asking me to describe the workings of the for-profit insurance industry.
You start on Wall Street. The beginning, the middle and the end is about one thing, profit.
In the United States health care is business. Your life and your health are commodities which are traded on Wall Street.
They want your body but only if it's healthy. They also want your premiums and have developed very sophisticated bait and switch marketing scams to entice you to sign up with a particular company. Then, on that very dark day when it's their turn to pay, well you know what happens.
So let's go behind the scenes and join a Wall Street conference call. We'll listen to them brag about Murder By Spreadsheet how they keep their costs low and their profits high.
A conference call is an event during which investors can call in to a special phone number and hear company management report its quarterly results as well as forward, or projected, earnings. While the average investor can only listen to the call, the reporting company will often field questions from analysts. Also known as "earnings conference call", "analyst call" and "earnings call".
I'm going to give you some highlights of a recent analyst conference call.
The Aetna Q2 2007 Earnings Call Transcript
If you read this diary, keep in mind that Dennis Kucinich is the only Democratic Presidential Candidate who wants to put these people out of business. This is not an endorsement of Kucinich, it's simply a fact.
All the other Democratic candidates want to essentially re-arrange the deck chairs on the Titanic. They plan on throwing millions of additional Americans into the bloodsucking hands of the for-profit insurance industry.
But this is not a diary about presidential candidates. It's about how Wall Street trades in illness, despair, heartbreak and death.
You're going to hear the CEO, CFO and assorted Aetna executives discuss you and your body like it is a piece of worthless meat. The meat which is your body, generates revenues premiums (this is what Wall Street loves). But when that meat which is your body falls ill, it generates dreaded losses--this is what Wall Street wants to avoid like the plague.
This is the cast of characters. Do you see anyone representing you or me?
Executives
Teresa Jhouka - Director of Investor Relations.
Ron Williams - Chairman & CEO.
Mark Bertolini - President
Joseph Zubretsky - EVP & CFO
Analysts
William Georges - J.P. Morgan
Scott Fidel - Deutsche Bank
Charles Boorady - Citigroup
Josh Raskin - Lehman Brothers
Al Copersino - META
Peter Costa - FTN Midwest Securities
Christine Arnold - Morgan Stanley
John Rex - Bear Stearns
Doug Simpson - Merrill Lynch
Let's listen in for a moment. I'll translate some of the Wall Street speak.
Ron William - CEO - Aetna
We are reporting operating earnings per share in the second quarter of 2007 of $0.83, an increase of 28% compared to the second quarter of 2006 and $0.04 per share above our guidance for the quarter.
This result reflects solid top-line growth achieved through our market segmentation strategy. Solid underwriting results driven by discipline pricing actions and favorable medical cost experience, as well as continued operating expense efficiencies derive form our cost management discipline.
Our increase in profitability reflects that we are serving more members and as a result of continued expansion through our segmentation and diversification efforts across more employee responses and government programs.
The purpose for segmenting a market is to allow the marketing/sales program to focus on the subset of people that are "most likely" to purchase an insurance company product. If done properly this helps to insure the highest return for the marketing/sales expenditures. Depending on whether a company is selling an offering to individual consumers or a business, there are definite differences in what is considered when defining market segments.
With the aid of computers, underwriters analyze information in insurance applications to determine whether a risk is acceptable and will not result in a loss. Like I said, they only want healthy bodies--bodies which will not result in any claims costs. Applications often are supplemented with reports from loss-control consultants, medical reports, reports from data vendors, and actuarial studies. Underwriters then must decide whether to issue the policy and, if so, the appropriate premium to charge.
Cost manangement disicpline. Oh that's easy. This is when your insurance company refuses to pay a claim. Remember a claim is a cost. Your sick body is a cost and costs are like the Devil. You and I when we get sick are worse than the Devil.
Next up is Joseph Zubretsky, the Chief Financial Officer
Next, I will discuss the healthcare cost experience in the second quarter of 2007. The commercial medical benefit ratio was 80.5% in the quarter, which compares to 81.1% in the second quarter of 2006. Our total medical benefit ratio, which includes our commercial Medicare and Medicaid products, was 81.5% in the second quarter of 2007, compared to 81.9% in the prior year quarter.
To draw a more appropriate year-over-year comparison however, we remind you that with the benefit of (inaudible) our commercial medical benefit ratio for the second quarter of 2006 has settled at approximately 80.5% and our total medical benefit ratio of the second quarter 2006 has settled at approximately 81%.
These positive results are the direct outcome of our pricing discipline and our continued commitment to managing medical cost utilization to our dedicated medical management processes. With medical benefit ratio level also demonstrate that we have kept our pricing in line with medical cost trend. Our full year view of medical cost trend is that it is stable and consistent with our prior quarter guidance of 7.5% plus or minus 50 basis points.
This is also easy to explain. The medical/loss ratio is the number of dollars a health insurer pays out in claims. The higher the number the more claims they are paying. Here the CFO brags that Aetna "manages medical cost utilization." This is insurance industry speak for denying you the CT or MRI scan that your doctor believes you require. The more they manage deny the better they do and this is what keeps Wall Street happy.
Keep in mind that these conference calls are Wall Street rituals. Every company in every industry uses them as a means of educating the analysts who in turn make stock trading recommendations.
After the executives speak the analysts ask a bunch of questions, which you can read if you go to the link at the beginning of the diary.
This question involved a discussion of how Aetna plans on capturing that very lucrative Medicare Advantage business and repositioning itself if when a Democrat wins in 2008.
Scott Fidel - Deutsche Bank
Okay and Ron I am wondering if you could talk a little bit about how you are thinking about positioning the Medicare Advantage business just in the long-term and obviously there is lot of growth in the market right now, but we are seeing a change in political landscape here down in Washington? And how do you think about that business longer-term especially if the Democrats takes back White House in 2008?
But as we all know, since healthcare is business in the United States, there are real world consequences of insurance company denials. Even gravely ill and injured people must run a gauntlet because in the United States, when it comes to the for-profit health insurance industry, they're trading in your life and mine.
Stay healthy, dear Kossacks.