Ever wonder what happens to the premiums you pay for your health insurance?
You might be surprised to learn that more and more of the dollars you pay for coverage are being sucked into a kind of black hole.
It doesn't really disappear, of course. It just doesn't do you a bit of good -- unless, of course, you believe it is to your advantage that it ultimately winds up in the bank accounts of a few investors and insurance company executives, including those who have to power to deny coverage for potentially life-saving care.
If you've been paying attention to what health insurance company CEOs have been saying to Wall Street over the past several months, you will know that they are spending more and more of their firms' cash -- which comes from you, of course -- to "repurchase" their firms' stock. And Wall Street absolutely loves that.
I once handled financial communications for CIGNA. So I knew that whenever the company could tell its shareholders that the amount of money it earned on a per share basis during the preceding three months was more than expected, those shareholders and other investors would likely show their appreciation by offering to buy even more shares of the company's stock. When more investors are buying stock in your company than are selling it, the stock price will go up. And when that happens, everybody who owns stock or can cash in a bunch of stock options -- including you, if you are a senior manager or a health plan medical director -- will suddenly be richer.
Being very familiar with how and why this happens, your company's top executives will do whatever they can make sure the earnings per share (EPS) exceeds Wall Street's expectations. One of the ways they do this is by joining the investors in buying shares of the company's stock. They are actually repurchasing or buying back those shares because it was the company that initially put the shares on the market in the first place.
When CIGNA announced on May 5 that its adjusted income from operations for the first quarter of 2011 was $1.37 per share compared to $1.01 per share during the same quarter in 2010, the company's stock price hit a 52-week high. The EPS was way more than investors had expected.
You had to read all the way to the bottom of page two of CIGNA's earnings release, however, to learn that one of the ways the company was able to achieve such an impressive increase in the EPS was by buying back a whole lot of the company's shares.
CIGNA's net income for the first quarter of this year was $429 million. So what did the company do with its wealth? Well, between January 1 and May 4, the company repurchased approximately 4.9 million shares of its own stock for $210 million.
The magic works like this: when you buy back shares of your own stock, those shares are "retired," meaning that there are fewer shares outstanding. Reducing the number of shares available for purchase changes the mathematical equation used to determine the EPS. The reduction gives the EPS a boost. The more shares you buy back, the bigger the boost.
All of the big for-profit insurers have been on a buyback binge lately. Humana executives announced a few weeks ago that it would be buying back $1 billion of its own shares between now and June 2013. That's a lot of money, of course, but nothing compared to what UnitedHealth said it plans to do. UnitedHealth's executives said the company plans to repurchase up to 110 million shares in the coming months. If UnitedHealth were to buy all those shares today, while the stock price is trading at around $50 per share, it would be spending $5.5 billion (of money that came from you, if you are a UnitedHealth policyholder) to make all those shares of stock go poof.
Stock options increase in value as long as the price per share goes up. Inflating the EPS by reducing the number of shares outstanding is almost always a sure-fire way to make sure executives have stock options with considerable value.
U.S. executives are as rich as they are primarily because of stock grants and stock options they are awarded by their companies. They love buybacks because, even though the cash deployed that way cannot be used for purposes that might be of greater value to the company as a whole and its customers, buybacks can increase their net worth dramatically.
In 2007, American companies spent 12 percent more on repurchases than they spent to improve their businesses, according to Fortuna Advisors, a financial consulting firm. The buybacks slowed after that year as a result of the economic downturn but are back in favor. According to data from Standard & Poors, U.S. companies bought about $86 billion of their own stock in the fourth quarter of last year, compared to $47.8 billion in the same quarter in 2009.
The advocacy group Health Care for America Now (HCAN) discovered while compiling data of health insurers' earnings that between 2003 and 2010, the five largest for-profit insurance firms spent $64.1 billion on share buybacks.
As HCAN president Ethan Rome testified earlier this month before the House Energy and Commerce Subcommittee on Health: "Buybacks don't improve operations, make the health system run more efficiently or reduce premiums. Their sole purpose is to boost stock prices" for the benefit of investors and executives.
Meanwhile, 51 million Americans are uninsured and another 25 million are underinsured, largely because of the actions insurance company executives take to enhance their firms' bottom lines, and to line their own pockets.
Do you own or manage a small business? I'd like to hear what it's been like to try to get health insurance coverage for your employees. Please go to http://bit.ly/mweBe2 and fill out a brief questionnaire. Thank you.
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Wendell Potter: Cost of health insurance leaves working folks further and further behind
Estimates are that seniors will pay an additional $7,000+ annually initially for coverage if "Ryancare" gets passed. While the vouchers may increase proportionate to the COLA, it would pale in comparison to the rise of costs (premiums, deductibles, co-pays) making any health care out of reach for those on fixed incomes.
Most of the Congressional representatives who voted for "Ryancare" have received significant contributions from health insurers. Three of Paul Ryan's top contributors are health insurers. I'm sure they're salivating at the prospects of getting our FICA payroll TAX dollars, and there's no doubt there'll be but few (if any) regulations-restrictions on curbinb abuses.
What he REALLY means is "we have to ask Americans to give MORE & MORE to insurance companies because they are so rich and profitable we couldn't even THINK of asking insurance companies to contribute a little.
Politicians have NOT gotten the memo yet that Americans are NOT THAT stupid after all.
Some areas are more competitve, but the industry needs to expand its lead generation and this leads to different channels receiving "incentives" to sell a product or refer a sale to the company.
Even online comparison sites do this, and there is a sometimes a false expectation that an online policy is going to be cheaper than one from an insurance broker - this is not always the case. If you take the case of let property insurance, it may be promoted through various affiliate schemes that each either reduce the "profit margin" or the commission is added to the policy cost.
Since the Veterans Health Administration (VHA) was systemically (and systematically) “reengineered” to follow a more decentralized, managed care template more than 15 years ago it has demonstrated accumulating achievements in health and health care delivery, over time outshining not only its own performance but that of others. In chronic disease management and preventive care, the VHA has surpassed Medicare , commercial managed care, and various community health systems in adherence to broadly accepted process measures .
Furthermore, beneficiaries of the VHA seem to have health outcomes — including mortality — that are the same as or better than those of Medicare and private sector patients. These findings are noteworthy given the population served by the VHA, which is recognized to be highly and relatively burdened by socioeconomic disadvantage, comorbid illness, and poor self-reported health.
Amazing what dedicated people can do.
http://www.huffingtonpost.com/wendell-potter/pay-much-attention-to-the_b_846003.html
http://www.youtube.com/watch?v=G4TsaHmtgfA&feature=relmfu