Insurance Companies Profit from Increasing Privatization of Medicaid and Medicare

As more people in the United States lose their health insurance or pay higher fees for lesser benefits, insurance companies rake in greater profits than other publicly traded corporations. At the same time, health industry executives have received higher pay increases than executives in other sectors.

While these news should come as no surprise – the U.S. health insurance industry has long been hugely profitable at the expense of patients and policyholders – a new Bloomberg Government study finds that soaring insurance industry profits since 2010 are the direct result of the increasing privatization of public health care programs.

A growing number of Medicaid and Medicare enrollees now receive their supposedly public coverage through private health insurers. Such outsourcing is often accompanied by new barriers to accessing care, an increase in denied claims, higher costs to enrollees, and sometimes even fraud.  Such experiences recently led Connecticut to buck the national privatization trend and stop the outsourcing of its Medicaid program.

The Bloomberg Government study ("Despite Predictions, Health Insurers Prosper Under Overhaul", available only behind a subscription barrier) is summarized in an article on From the article:

“[P]rofit margins at the companies widened to levels not seen since before the recession, a Bloomberg Government study shows. Insurers led by WellPoint Inc. (WLP), the biggest by membership, recorded their highest combined quarterly net income of the past decade after the [federal health reform] law was signed in 2010, said Peter Gosselin, the study author and senior health-care analyst for Bloomberg Government. The Standard & Poor’s 500 Managed Health-Care Index rose 36 percent in the period, four times more than the S&P 500. […]

[T]he companies saw their average operating profit margins expand to 8.24 percent in the six quarters since the overhaul became law, compared with 6.88 percent for the 18 months before it was passed. […]

Commercial business now accounts for less than half of the companies’ combined revenue for the first time in at least two decades, according to the study. That’s partly a result of the companies’ growing investments in plans that provide services to Medicare and Medicaid patients, the report said.

At the same time, quarterly revenue from Medicare, the $525 billion federal health program for the elderly and disabled, increased by one third, to $16.39 billion, for the four insurers that reported figures, the study shows. Medicaid revenue more than doubled to $4.11 billion. […]

Between now and 2014, health plans will be able to bid on an estimated $40 billion in state Medicaid contracts, the study found.”

The Washington Post reports that insurers’ profits have risen “even as revenues from traditional private-insurance business have remained virtually flat since the end of 2008.” Profit gains resulted from “taking over components of the Medicare and Medicaid programs that government policymakers are increasingly outsourcing in hopes of cutting expenditures.”

According to the Post, the study’s author stated that even as the Affordable Care Act is set to curb some excesses in public payments to private Medicare Advantage plans, “the insurers still expect the plans to prove profitable, because the current national focus on debt reduction will give them political cover to manage beneficiaries’ care more tightly than was considered palatable in years past.” In other words, to deny even more claims, so that more public money can be channeled to bolster private profits.

A blog on Think Progress also expects that profits will continue to grow, reminding us that “a July 2010 report from PricewaterhouseCoopers concluded that the [health reform] law’s state-based health care exchanges provide private insurers with a lucrative new market in which they stand to gain up to $200 billion in revenue by 2019.”