Why Profit Margins Can Be Evil

Although I’ve only been offically working “in politics” for less than a year, I’m already slightly jaded. Friends will complain about politicians to me, but if it has nothing to do with a floor speech and isn’t totally outrageous, I shrug it off. I don’t see this as a bad thing. As a “professional” lobbyist, I have to have a thick skin to a certain point to retain my ability to do my job and do it well. (And let’s be honest, I do it very well.)

But the private sector is a completely different animal. The things the private sector does, and gets away with, makes me nauseous. The latest revelation of private sector misdeeds comes from a section that claims to be doing good: the health insurance industry.

These are the people that are responsible for ensuring that Americans have access to medical attention and care when they need it. By no measure are they doing this well, but I had no idea the extent to which they were an evil industry. Then along came Wendell Potter.

“My name is Wendell Potter and for 20 years, I worked as a senior executive at health insurance companies, and I saw how they confuse their customers and dump the sick – all so they can satisfy their Wall Street investors.”

It’s with those words that he began his testimony in from of the Senate Commerce Committee at a hearing on “Consumer Choices and Transparency in the Health Insurance Industry.” And it’s with those words that he began his tale of an industry wide effort to deny people medical care in order to expand profits.

Some of the highlights (or lowlights, depending on how you look at it): “To win the favor of powerful analysts, for-profit insurers must prove that they made more money during the previous quarter than a year earlier and that the portion of the premium [that is, the premiums YOU pay for medical care] going to medical costs is falling.” 

“To help meet Wall Street’s relentless profit expectations, insurers routinely dump policyholders who are less profitable or who get sick.” 

“Insurers have several ways to cull the sick from their rolls. One is policy rescission. They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment.”

“The purging of less profitable accounts through intentionally unrealistic rate increases helps explain why the number of small businesses offering coverage to their employees has fallen from 61 percent to 38 percent since 1993, according to the National Small Business Association. Once an insurer purges a business, there are often no other viable choices in the health insurance market because of rampant industry consolidation.”

Now, I don’t know much about Mr. Potter. I don’t know if he has an axe to grind. I don’t know the details surrounding his departure from Cigna. I do know, however, that his story makes sense. I do know that for-profit institutions usually can’t see past their bottom line, and that does not bode well for Americans when that practice is widely adopted by the industry responsible for ensuring we can afford the medical care we need. I’ll end on the paragraph that literally sent chills down my spine.

“While strategically initiating these cost hikes, insurers have professed to be the victims of rising health costs while taking no responsibility for their share of America’s health care affordability crisis. Yet, all the while, health-plan operating margins have increased as sick people are forced to scramble for insurance.”

UPDATE: Wendell Potter has an interview with the Columbia Journalism Review here that goes into more detail about how he, as an insurance company PR guy, disguised what health insurers were actually up to.

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