New Letter from Wendell Potter to the Senate on Aetna and Corporate Spin

Here is a letter the Center for Media and Democracy's Wendell Potter recently sent to the Senate about the health care reform efforts and corporate spin:

My name is Wendell Potter, the former insurance industry insider speaking out about how insurance companies have hijacked our health care system in service of Wall Street's relentless profit expectations. I am joined in this letter by Andrew Kurz, a former chief financial officer for Wisconsin Blue Cross and Blue Shield who shares these concerns.

We stand together for immediately reforming the plainly broken U.S. health care system with its spiraling premium costs and harmful loopholes. Business as usual is taking a terrible toll on Americans, on government budgets, and on our nation's ability to compete in the global marketplace. This is unacceptable and unsustainable.

We are writing at this crucial moment in response to some of the regrettably misleading arguments being made against health care reform. As a former executive who used to be on the inside of the health insurers' anti-reform efforts, I can assure you the industry and its staunch allies will leave no ploy behind. You need look no further than this week's news about Aetna's layoff.

Perhaps it is just a coincidence that Aetna made its layoff announcement at this key moment in this debate. As you have no doubt heard, the company said it would reduce its workforce by 1.75 percent in "preparation" for possible health reform legislation as well as to consolidate real estate holdings. Aetna said this resulted in a $44 million "severance and facility charge." Leaving aside the suspect timing of this announcement, it is important to put this news in context. The need to consolidate real estate holdings has nothing to do with health reform bills, and most companies have reduced staff due to the financial crisis of 2008. To us, tying this to health reform seems like pure hype.

Also putting this announcement in context is the fact that, in 2008, Aetna trumpeted that its revenues "increased 14 percent over 2007 to $31.6 billion." See http://tinyurl.com/y9hfvw3 (at page 3). According to its 10-K filing with the SEC for 2008, Aetna's net income after expenses, including taxes, was $1.38 billion.

This relates to our second point: profitability. We have heard repeated claims that insurance companies are barely making a profit, with the figure of just 3% in profits being bandied about. But, the reliance on percentages is very misleading given the amount of real money the percentage is based upon. In Aetna's case, the company's net income in 2008 was about 4 percent of $31.6 billion or $1.38 billion dollars after taxes. That amounts to almost $4 million in profit per day, or almost $400,000 an hour, on average. And those are profits from premiums paid by hard-working Americans, many of whom risk personal bankruptcy if their insurance company uses some loophole to refuse to pay for their health costs in order to appease Wall Street. But an even better measure of profitability is return on equity (ROE), which asks how much did you have to invest to obtain that return. In Aetna's case, shareholder equity is almost $8.2 billion, so their ROE is 17 percent after tax, which is a very solid return by Wall Street's standards, far better than the interest rate for consumer savings.

Third, as I have testified before the Senate, these profits are built on an ever increasing "medical loss ratio," which is another obscure term that means the difference between the premiums people pay and how much the company pays for medical care. As PricewaterhouseCoopers noted last year, the collective medical loss ratios of the seven largest for-profit insurers fell from an average of 85.3 percent in 1998 to 81.6 percent in 2008. This 3.7 percent reduction in benefits paid for customers' medical care—at a time when medical costs have actually gone up for consumers and hospitals—"translates into a difference of several billion dollars in favor of insurance company shareholders and executives and at the expense of health care providers and their patients." The medical loss ratio has been changed over the years to please Wall Street, based largely on denying claims and kicking patients off the rolls.

Fourth, let's get real about what all these numbers mean. These high profit margins, when considered in real dollars, mean that American consumers are subsidizing huge compensation packages for CEOs. Here are the 2008 total compensation figures for the biggest insurance companies: Aetna, Ronald A. Williams: $24,300,112; Cigna, H. Edward Hanway: $12,236,740; Coventry, Dale Wolf: $9,047,469; Health Net, Jay Gellert: $4,425,355; Humana, Michael McCallister: $4,764,309; United Health Group, Stephen J. Hemsley: $3,241,042; Wellpoint, Angela Braly: $9,844,212. See http://tinyurl.com/msbzkb. Millions and millions more are paid their vice presidents and boards. Not to pick on Aetna again, but their CEO's salary amounts to more than $97,000 per day (assuming 250 workdays a year). In 2007, the Census Bureau reported that the median household income for Americans was just over $50,000 a year. And, these companies come before Congress and claim that reforms—intended to ensure that ordinary Americans can obtain the health care they need—must be rejected because they would unfairly erode profits. Their profits are exacting too a high price on Americans who are denied coverage or under-insured.

Fifth, these profits have been made possible, in part, by anti-competitive monopolies and oligopolies that individual companies hold in major markets across the country. There has been a tremendous consolidation in the health insurance industry over the past 15 years. A cartel of very large for-profit insurance companies now dominates the industry. Excluding Medicare and Medicaid enrollees, nearly one of every two Americans is enrolled in some kind of plan offered by seven of those large companies. Almost all metro areas in the country—and states that are more rural than urban—are now dominated by just one or two insurers. It is impossible for even one of the other large insurers to break into a market so dominated by its competitors.

Look at Philadelphia, where CIGNA, my former employer is based. The lion's share of the insurance market in Philly is controlled by Independence Blue Cross and Aetna. CIGNA would love to be a big player in its own hometown, but it has never been able to scale up to be a serious competitor. It has some business there, but not much comparatively. If CIGNA cannot overcome the huge barriers to entering that market, what insurer can? That is just one of the reasons why the market cannot solve these problems on its own. The truth is that the market has no real interest in solving these problems, because there is no profit in covering all Americans as they age or get sick, which is simply part of the human condition. There is no financial incentive to opening the market to greater competition. The financial incentives actually run the opposite way. Fewer sick people equal greater profits.

That is why there is such determined resistance to the option of choosing a government insurance plan, like Medicare for all. The government would have incentives to reduce and manage costs, but it would not need to make billions in profits each year for investors. It would not need to rob premium dollars from consumers to buy high-priced lobbyists. It would not need to pay taxes on premiums. And, it would not have to pay a CEO $97,000 a day or even $10,000 a day. In this case, with Americans' very lives at stake, it is emphatically not the case that the market is always right. The consequences for ordinary people are just too grave. Just ask yourself: How are these companies able to keep after-tax net earnings so high while everyone else's costs of premiums and doctor's bills are going up, up, up? It's by leaving people out, and it's time Congress fixed this.

Sincerely,

Wendell Potter and Andrew Kurz

Lisa Graves

Lisa Graves is President of the Board of the Center for Media and Democracy (CMD) and co-founder of Documented Investigations. She served as CMD's executive director for eight years from July 2009 through October 2017.

CMD launched its award-winning ALEC Exposed investigation after a whistleblower gave Lisa all of the model bills secretly voted on by lobbyists and lawmakers. CMD also publishes PRWatch.org, SourceWatch.org, and ExposedbyCMD.org.