Health insurers take heat for rise in profits

Reporting from Washington â€”  As the nation struggled last year with rising healthcare costs and a recession, the five largest health insurance companies racked up combined profits of $12.2 billion -- up 56% over 2008, according to a new report by liberal healthcare activists.

Based on company financial reports for 2009 filed with the Securities and Exchange Commission, the report said, insurers WellPoint Inc., UnitedHealth Group, Cigna Corp., Aetna Inc. and Humana Inc. covered 2.7 million fewer people than they did the year before.

The report released Thursday also said some of the five insurers cut the proportion of premiums they spent on their customers’ medical care, committing relatively more to salaries, administrative expenses and profit.

Prepared by Health Care for America Now, a coalition of liberal advocacy groups and labor unions, the report was aimed at bolstering the drive by Democrats to get Congress’ approval on a healthcare overhaul, which insurers have vigorously opposed.

Industry representatives criticized the report’s approach, pointing out that 2008 was a bad year financially across many industries.

“It is disingenuous to look at the profits at one company today compared to where it was in the depth of a recession,� said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the industry’s Washington-based lobbying arm.

The companies’ 2009 profits are nonetheless fueling attacks on an industry already criticized for raising premiums and denying coverage to millions of Americans.

“That’s why we need health insurance reform today in this country and why we are going to continue in the Congress to work on this until we see it through,� said Rep. Rosa DeLauro (D-Conn.), a leading advocate of the health legislation being pushed by Democrats on Capitol Hill.

Anthem Blue Cross, a California subsidiary of WellPoint, is facing growing scrutiny over its decision to raise premiums as much as 39% this year on some individual health policies.

On Thursday, WellPoint defended the rate increase in a letter to U.S. Health and Human Services Secretary Kathleen Sebelius, saying they reflected soaring medical costs.

Company executives said in an interview that the rising rates would average closer to 25%.

WellPoint also said Anthem lost money in 2009 as the weak economy prompted many customers to switch to lower-cost options. It did not say how much Anthem lost.

Indianapolis-based WellPoint as a whole posted a profit, recording net income of more than $4.7 billion in 2009, in part because of the sale of its NextRx pharmacy benefit management business, which accounted for roughly half of the company’s profit.

That put WellPoint’s profit margin at 7.3%, the highest of the five big insurers. Margins at the other four ranged from 3.4% for Louisville, Ky.-based Humana to 7.1% for Philadelphia-based Cigna.

Other sectors of the healthcare industry, including pharmaceutical companies and device makers, are typically more profitable.

But health insurers’ improving financial fortunes are drawing more criticism because all but one of the companies achieved the better results at the same time they lost customers.

WellPoint shed nearly 1.4 million customers, a 3.9% drop from 2008, according to its filings. Cigna lost 5.5% of its customers, or 639,000 people.

Only Aetna, which also was the only company whose profit decreased from 2008, gained new customers. It picked up 1.2 million people, an increase of 6.9%.

The insurers’ shrinking customer base -- which reflected increasing unemployment and the growing number of employers that were dropping coverage -- was offset slightly by growth in their public-sector business.

Many increased the number of people they insure through Medicare and Medicaid. The government programs for the elderly and the poor increasingly rely on private health plans to administer benefits.

Industry analyst Sheryl Skolnick, a senior vice president at CRT Capital Group, said many of the insurance companies would probably benefit from more customers in the long run.

But they are driven to raise prices for their health plans to satisfy investors, which in turn drives away customers.

“It is a terrible thing to run your business for Wall Street,� Skolnick said.

“It creates very bad incentives, and it ultimately prevents you from doing the thing that is in the best long-term interest of your business. . . . There is no way that as long as these businesses are publicly traded, they can have the best interest of their customers at heart.�

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Times staff writer Duke Helfand contributed to this report.