Major U.S. health insurers reporting higher profits

The nation’s leading health insurers are experiencing an embarrassment of profits.

Some of the largest companies, including Anthem, Humana 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 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 last week suggested that they reduce premiums to help consumers through the economic downturn caused by the pandemic.

CVS Health, which owns Aetna, the big insurer, posted much higher earnings last week. 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 with $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 Rep. Pramila Jayapal, D-Wash., who is a strong proponent of Medicare for All.

“Who knows what’s going to happen by January?” 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 Sen. Elizabeth Warren, D-Mass., has suggested.

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

Among the companies with robust earnings is Humana, which reported last week that its net income rose to $1.8 billion for the second-quarter, compared with $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% 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% for the quarter, compared with 84% 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 ACA 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 Mendelson of Avalere. “It will always feel underwhelming.”

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.

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.