Top insurers reap billions as health costs soar

WASHINGTON — As the nation struggled last year with rising health-care costs and a recession, the five largest health-insurance companies racked up combined profits of $12.2 billion, up 56 percent over 2008, according to a new report.

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

The report also said three of the five insurers cut the proportion of premiums they spent on customers' medical care, committing relatively more to salaries, administrative expenses and profits.

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 complete work on a health-care overhaul, which insurers have vigorously opposed.

Industry representatives criticized the report's approach, noting that 2008 was a bad year financially across many industries, skewing the 2009 comparison.

"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, D.C.-based lobbying arm.

While all five companies indeed reported lower profits between 2007 and 2008, a Seattle Times review of financial statements shows that the profits of three of them — WellPoint, Cigna and Humana — were higher in 2009 than in 2007, before the recession. Outside factors such as the sales of assets can affect those numbers, however.

WellPoint's 2009 numbers were bolstered significantly by the sale of its NextRx pharmacy-benefit management business, which accounted for more than 40 percent of the company's profit.

The insurers' 2009 profits are intensifying pressure on an industry already under attack 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.

In California, Anthem Blue Cross, a subsidiary of WellPoint, is facing growing scrutiny over its decision to increase premiums for individual health-insurance policies by as much as 39 percent this year for some consumers.

WellPoint on Thursday defended the rate increase in a letter to Health and Human Services Secretary Kathleen Sebelius, saying the rising rates reflect soaring medical costs and will average closer to 20 percent for most customers.

WellPoint also said Anthem's individual business in California lost money in 2009, as the weak economy prompted many customers to switch to lower-cost options. The company did not say how much Anthem lost.

Indianapolis-based WellPoint as a whole posted a profit, however, recording net income of more than $4.7 billion in 2009, thanks in part to the sale of the pharmacy-benefit management business.

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

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

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

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

Only Aetna, the only company whose profits decreased from 2008, gained new customers, picking up an additional 1.2 million people, an increase of 6.9 percent.

The shrinking customer base — which reflects increasing unemployment and the growing number of companies that are dropping coverage — was offset slightly by growth in the companies' 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 likely would benefit from more customers.

But they are driven to increase prices for their products to satisfy investors, which in turn drives away more and more 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."

Los Angeles Times reporter Duke Helfand contributed to this report.