Wednesday, July 28, 2010

Hey, Look, There's An Earnings Report!

You know what you want. Besides world peace, free money, and more Law and Order reruns. You want commentary on a pair of health insurer’s earnings reports. That’s why you’re reading this, as I aim to provide just that.

The pair of insurers is Aetna and WellPoint, just two nonfunctioning, grinding cogs in a generally nonfunctioning systems. Both, naturally, reported high profits: WellPoint’s profits went up 4% while Aetna’s profit went up: “The company Tuesday posted a 42% increase in second-quarter profit and raised its full-year outlook, even as revenue and employer-based membership declined.” Americans not receiving particularly good care is no barrier to high profits in our system.

What I found interesting about this report is the why. The Aetna article contains this somewhat vague paragraph: “Lighter utilization of medical services, including a less severe flu season earlier this year compared with 2009, and an upturn in the industry underwriting cycle are believed to be helping managed-care companies' results this year.”

Dig even closer into the numbers and you see some interesting things. Compare Aetna, here with WellPoint, next.

Aetna: “For the quarter, Aetna posted net income of $491 million, or $1.14 a share, compared with $346.6 million, or 77 cents a share, a year earlier. Revenue declined 1.4% to $8.55 billion.

WellPoint: “Revenue at its commercial segment, the largest by revenue, fell 9% while profit jumped 28%. Consumer business revenue fell 2.4% and profit dropped 21%....Medical enrollment fell 2% to 33.5 million as of June 30 from a year earlier and declined 300,000 during the quarter. The company expects enrollment at the end of the year to be about 33.1 million.”

Basically, it looks like they made money the New York Times way: cutting costs faster than revenue fell. That revenue probably came from less coverage; we’re sure it did in the case of WellPoint, at least. And the lesser costs? There are two possibilities: people are voluntarily going to the doctor less or insurers are spiking claims. Either of these options is not particularly cheering, as you’d have to imagine people voluntarily skipping out for the doctor are for such things as checkups and preventative work, rather than, say, dismemberment; insurers spiking claims just creates hassles for everyone without improving either quality or the underlying issues of the health care system. So that’s bad. There would be at least a mild upside if, accompanied with these cuts in costs for the insurers, there were also cost-cuts for businesses and consumers, i.e. the insurers passed on their savings to consumers. As you may have guessed from the resolutely pessimistic direction of this paragraph, this is not the case (in WellPoint’s case, at least):
The company said it continues to price its commercial business so that the premium yield exceeds growth in total costs. While WellPoint maintained its forecast for group medical costs to grow by 8% plus or minus 50 basis points this year, it now expects the rate to hit the lower end of that range.

Basically, I’d assert there is literally nothing of a positive cast in these articles for the direction of the health care system specifically or our economy broadly. The worst aspect, I bet, is that they’re going to hoard that money because that’s what all the cool kids are doing. There’s nothing like a little bit of terrible news to propel you through your day with a smile. Go watch your Law and Order reruns.

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