The Battle for Reform

A few weeks ago, Wendell Potter appeared on Bill Moyers Journel to discuss why he had switched sides from the insurance industry, where he was the head of public relations for CIGNA, to supporting comprehensive reform that includes a public option. During the discussion, he mentioned a term that I hadn't heard discussed by the media at all: medical loss ratio.

For those unfamiliar with the term, the medical loss ratio of an insurance company is the percentage of money paid in claims vs the amount of premiums collected. You read that correctly: the insurance industry considers any money paid out to cover medical expenses, their ONLY reason for existing, as a loss to the company. Does anyone still debate that the profit motive has skyrocketed out of control?

According to each companies form 10-K, here are the leading health insurance companies medical loss ratios for 2005 compiled by Physicans for a National Health Program, PNHP:

• 76.9% - Aetna
• 82.3% - Cigna
• 83.9% - Health Net
• 83.2% - Humana
• 78.6% - UnitedHealth Group
• 80.6% - WellPoint

By themselves, those percentages may not look too bad, but according to PNHP:

Whereas 10 years ago many plans had medical-cost ratios in the high 80s or 90s, now the highest percentage among large, publicly traded health insurers is Health Net, at 83.9%. Aetna, which had a medical-cost ratio well into the 90s when CEO John Rowe, MD, took over in 2000, recorded a ratio of 76.9% in 2005, Dr. Rowe’s final full year before his retirement. That was the lowest medical-cost ratio for the nation’s largest publicly traded plans.

In my opinion, the lack of this profit motive is why 82% of Canadians believe that their health care system is superior to the United States' and 70% think that their public health care system is working well or very well.

So if the majority of Americans want a public option that will force the private insurance industry to increase their MLR's or lose their customers to the public plan, why can't it get through Congress? The answer, yet again, appears to be the power of corporate lobbyists and the destructive effect of money on the democratic process. Thanks to the people over at baselinescenario.com, we now have an estimate to just how much money is at stake:

Here is how the share prices of three major insurance companies (Cigna, United Healthcare Group, Aetna) responded on Tuesday, July 28 to the Monday night announcement that the group of six senators is going to eliminate the public option from their version of the health care reform legislation [graph produced using Yahoo Finance]. We have basically an 8-10 percent gain for these companies from the Senate announcement. And as the graph below shows, the S&P 500 index (yellow) was essentially flat. The market caps of these three companies together are around $53 billion, which suggests a $4-5 billion value from the announcement by the group of 6.

So, just a preliminary announcement that the public option might be stripped from the legislation caused the market value of just these three companies to increase by $4-5 billion.

That's capitalism!