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Major U.S. Health Insurers Report Big Profits, Benefiting From the Pandemic

Consumers are probably entitled to millions of dollars in rebates under Obamacare rules that cap companies’ profits.

Some of the largest companies, including AnthemHumana and UnitedHealth Group, are reporting second-quarter earnings that are double what they were a year ago. And while insurance profits are capped under the Affordable Care Act, with the requirement that consumers should benefit from such excesses in the form of rebates, no one should expect an immediate windfall.

But the amounts that insurers are retaining have caught the attention of the Trump administration. The Health and Human Services Department advised companies to consider speeding up rebates, and on Tuesday suggested that they reduce premiums to help consumers through the economic downturn caused by the pandemic.

Just this Wednesday, CVS Health, which owns Aetna, the big insurer, posted much higher earnings. CVS, which also owns a large pharmacy benefit manager and a drugstore chain, said net income for the second quarter reached $3 billion, about $1 billion more than it reported for the same period of 2019, on revenues of $65 billion.

Others had already trumpeted blockbuster results, ensuring that their stocks weathered swings in the markets. Anthem’s net income soared to $2.3 billion for the second quarter, from $1.1 billion in 2019, while UnitedHealth reported net earnings of $6.7 billion, compared to $3.4 billion for the same three months last year.

Although many hospitals have been overwhelmed by the coronavirus outbreaks raging from state to state, insurers have shelled out billions of dollars less in medical claims in the last three months because expensive, elective surgeries have been postponed in many places. Moreover, people have steered clear of doctors’ offices and emergency rooms in fear of contagion.

The companies’ staggering pandemic profits stand in stark contrast to the scores of small medical practices and rural hospitals that are struggling to stay open. And the earnings are putting a spotlight on the big insurance companies at a time when government officials in many states are facing massive budget shortfalls as businesses collapse, unemployment rises and tax revenues plummet. Some states are discussing cutting payments to insurers that offer Medicaid plans to their residents.

“This could tilt the politics against insurers on a whole number of fronts,” said Larry Levitt, the executive vice president for health policy for the Kaiser Family Foundation, a nonpartisan research group.

And in this presidential election year, the companies’ overly buoyant position could also reignite a discussion among Democrats about “Medicare for all,” a proposal that would replace the current private health care system with a government one that guarantees coverage for all U.S. residents.

“We’re looking at the fact that health care can’t be regulated by the marketplace,” said Representative Pramila Jayapal, the Washington State Democrat who is a strong proponent of Medicare for all.

“Who knows what’s going to happen by January?” Ms. Jayapal asked. “It’s entirely possible that everything shifts on health care, within weeks or months after the election.”

Some lawmakers may also try to revive proposals to cap insurers’ profits even more, like one that Senator Elizabeth Warren, the Massachusetts Democrat, has suggested.

“There is that money sitting there,” said Dan Mendelson, the founder of Avalere Health, a consulting firm.

Among the companies with robust earnings is Humana, which reported Wednesday that its net income rose to $1.8 billion for the second-quarter, compared to $940 million for the same three months of 2019. The profits for Cigna, which also owns a large pharmacy benefit manager, were also higher.

Under the federal health care law, insurers are required to use a fixed percentage of the money they take in from premiums for their customers’ medical expenses. The companies must spend at least 80 cents of every dollar they collect in premiums from small businesses and individuals on health care, and 85 cents per dollar for large employers. The remaining 15 to 20 percent is all they are allowed under the Affordable Care Act to spend on administrative costs like overhead and marketing and to keep as profit. Any additional revenues are to be returned to consumers in the form of rebates.

Insurers are currently spending a far lower portion of premium revenue on their customers’ health care costs. CVS said its medical-benefits ratio was 70 percent for the quarter, compared to 84 percent in the same period of 2019.

That translates into millions of dollars that some lawmakers in Congress and advocates say should wind up in the pockets of consumers.

In recent years, insurers have paid out billions of dollars in rebates, said Cynthia Cox, one of the authors of a recent Kaiser Family Foundation analysis that estimated employers and individuals would receive $2.7 billion this year in rebates required under Obamacare. That figure does not include 2020 amounts.

People who had health insurance through the A.C.A. last year could receive an average of $420 a person, she said.

“For any given customer, it’s not going to be a lot of money,” said Mr. Mendelson of Avalere. “It will always feel underwhelming.”


ImageRep. Pramila Jayapal, Democrat of Washington, who wrote the Medicare for All bill, in Washington last summer.
Credit…T.J. Kirkpatrick for The New York Times

Eventually consumers should get some of this year’s money back. The insurers “are not just able to profiteer,” said Katherine Hempstead, a senior policy adviser for the Robert Wood Johnson Foundation who studies health insurance markets.

Even though the federal government is now encouraging insurers to turn over excess funds to consumers more quickly this year, the Obamacare law gives companies a three-year window to calculate how much to return as a way to offset any mistakes they made in setting rates or if they experienced unexpected expenses.

“There’s a cushioning effect for swings,” said Mark Hall, the director of the health law and policy program at Wake Forest University.

So no one should count on getting money from this year’s burgeoning insurance profits anytime soon.

And the financial outlook for the year is still uncertain, given the rising number of Covid-19 cases shifting from state to state and the longer term costs of caring for Covid-19 patients, with potentially expensive new vaccines or treatments around the corner. Conversely, the many people who postponed getting medical attention could flock back to doctors’ offices and submit more bills for coverage.

“They don’t actually know what’s coming around the corner,” said Dr. Sanjay Saxena, a managing director for the Boston Consulting Group. “They can’t just write checks and give away the money.”

Insurers say that they are using their financial strength to help customers as well as hospitals and doctors. “From the very beginning, health insurance providers have focused on being part of the solution,” said Matt Eyles, the chief executive of America’s Health Insurance Plans, a trade group. As examples, he cited waiving co-payments for testing and treatment for coronavirus and paying for telemedicine visits, some of which the government has mandated be covered.

The companies also say they are spending billions of dollars on efforts that range from giving small businesses a break on their monthly premiums to paying physicians in advance to help keep practices afloat.

On conference calls with Wall Street analysts, executives were quick to point out steps they have taken to assuage the worries of Americans overwhelmed by the virus outbreaks.

“We took action to commit $2.5 billion in financial assistance to ease the burden of Covid-19 among our members, employer customers, care providers and nonprofit partners,” said Gail K. Boudreaux, the chief executive of Anthem. She listed several initiatives, including giving customers a premium credit and donations to a food charity. “The needs are ongoing, and I’m proud of the way Anthem has responded quickly to provide needed support,” she said.

Nonprofit insurers, including most of the Blue Cross plans offered in individual states, are also experiencing much higher profit margins. While they too are subject to the A.C.A. rules and must pay out required rebates, they can plow any additional surplus into their capital reserves, Mr. Hall said. “They never feel that they have enough reserves, and the regulators don’t really require insurers to spend down their reserves,” he said.

But the companies may have even higher profits than is apparent. Some, like UnitedHealth, have large networks of doctors and other health care businesses, in addition to owning giant pharmacy benefit managers. There are no limits on how much these units can make, and many of the units sell their services directly to the insurer.

The profits being reported don’t “give an accurate picture of how much money they are making for the insurers,” said Michael Turpin, a former insurance executive and an executive vice president at USI, an insurance brokerage. “You’re not going to negotiate with your sister company very robustly.”

Some hospital executives and doctors say that the insurers should do much more. “Everyone should be playing a part as it relates to the pandemic, and insurers are no exception,” said Colleen M. Blye, the chief financial officer for the Montefiore Health System, a large hospital group in the Bronx that has treated more than 10,000 Covid patients.

“The government has been funding the providers significantly,” she said, referring to the $175 billion in funds Congress has allocated to date for hospitals and doctors. “The insurers should be sharing that burden, and they haven’t been.”

Insurers say they have been strong advocates for providers like the hospital systems. “We’ve consistently supported their efforts,” said Mr. Eyles.

So far, investors are not concerned about the political risks of the insurers’ high profits, said Les Funtleyder, who is a health care portfolio manager for E Squared Capital Management, which owns shares of UnitedHealth.

Even if former Vice President Joseph R. Biden Jr., the Democratic presidential candidate, wins in November, he would probably be unlikely to push for anything close to Medicare for all. Mr. Biden favors revamping Obamacare and offering a public option, a government-run alternative to private insurance.

But the calculation could change, depending on his choice of vice president, Mr. Funtleyder said. Senator Warren, who has called for a sweeping health care overhaul, is one of several names on a long list of potential female running mates for Mr. Biden.

“If Warren was vice president, it would definitely spook Wall Street,” Mr. Funtleyder said.

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