Health Care Costs Fueled by 86% Insurer Profit Increase

While huge increases in insurance company profits are fueling double digit increase in health insurance costs neither President Bush nor Democratic Presidential nominee John Kerry have provided a solution that will protect American patients struggling to afford health coverage, according to the nonpartisan Foundation for Taxpayer and Consumer Rights.

A survey released yesterday by the Kaiser Family Foundation found that employer-sponsored health insurance premiums have experienced double digit increases over each of the last four years — an 11.2% increase in 2004 alone. Meanwhile new data show that HMOs and other health insurers recorded an 86% profit increase in 2003. California HMOs reported the highest aggregate earnings at $773.6 million (see below for an analysis of insurer profits).

In addition to HMOs, property and casualty insurers reported a 182% gain in the first quarter of 2004 compared to the same period in 2003. While the GOP consistently points to insurance litigation costs, Republican leaders have yet to address how the profitability of insurers has driven up the cost of coverage for all consumers. Profit data for health, property and casualty insurers was released this week by the independent market analyst, Weiss Ratings Inc.

“Why won’t either candidate say that the reason that more Americans cannot afford health insurance coverage is because insurance companies are recording double and triple digit profit increases?,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights (FTCR). “President Bush and Senator Kerry better start talking about ways to control insurer profiteering and regulate rate increases because American families can no longer afford the insurance coverage they need.”

In the U.S., 44 million people are uninsured — as many as 80% of whom are members of working families. In 2002, the largest increase in uninsured rates occurred for middle income families.

Nationally HMOs and health insurers spend up to 25% or more of the health care premiums they collect on profit and overhead, including advertising and executive salaries. HMOs and health plans claim that skyrocketing premiums are the result of increasing medical costs, however, in 2002 the Kaiser Family foundation found that the cost of health insurance for a family of four increased 250% more than the rate of medical inflation.

“Because so much of our money goes to HMO profits and overhead costs, patients pay more for less care and many are forced to drop coverage altogether,” said Jerry Flanagan of FTCR. “Health insurers should be required to get prior approval for rate increases similar to systems in place in California for the auto and home insurance.”

FTCR said that the standards used for such health insurance reviews should be similar to those used for auto and home insurance for over a decade in California. The landmark auto insurance reform initiative, Proposition 103, championed by FTCR’s Harvey Rosenfield in 1988 established a ‘prior approval‘ system for auto, home, and property/casualty insurance. During the decade after Proposition was adopted, auto insurance rates in California went down by 4.0% while insurance products remain broadly available and competitive, and the uninsured motorist population declined by 38%. Nationally, rates rose over 25% during this period. California consumers saved over $23 billion since 1988 under the prior approval system.

According to Weiss Ratings Inc:

** The nation’s HMOs nearly doubled their profits during 2003, earning $10.2 billion, an 86% increase over the $5.5 billion reported in 2002.

** For 2003, the nonprofit Kaiser Foundation Health Plan reported a $1.1 billion increase, which represents one-fifth of the industry’s net profit improvement.

** Blue Cross Blue Shield plans, as a group, produced a $5.4 billion profit, which is a $2.1 billion, or 63 percent, increase compared to the $3.3 billion profit recorded in 2002. The nonprofit Blue Shield of California experienced a 220% increase — or $314.2 million in 2003, up from $142.6 million in 2002.

According to the Center for Responsive Politics, Bush has received $29.3 million from insurers and related contributors. Senator John Kerry has received $9.2 million.

“George W. Bush and John Kerry should both pledge to conduct a thorough review of insurer waste and profiteering on the order of the recent 9/11 commission. Out-of-control health and other insurance costs are one of the greatest threats facing all but the wealthiest Americans,” said Flanagan.

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The Foundation for Taxpayer and Consumer Rights (FTCR) is a non-profit and non-partisan consumer advocacy organization. For more information, visit us on the web at http://www.consumerwatchdog.org