Thank you, UnitedHealth Group [3]. Your jaw-dropping profit announcement may be just what the doctor ordered.

ORLANDO--If you are hopeful that the consumer protections in the health care reform law actually wind up benefiting consumers more than the insurance industry, please send a thank-you note to executives at UnitedHealth Group, the largest U.S. health insurer.

United announced Tuesday morning that it's third-quarter profit jumped 23% -- much more than investors and analysts had expected -- largely because it spent far less of its customers' premiums on medical care than it did this time last year. When an insurance company spends less of every premium dollar it takes in on medical care, it has more left over to reward shareholders and a handful of senior managers who already are among the highest-paid executives on the planet.

United's announcement is cause for joy because maybe, just maybe, the nation's state insurance commissioners -- whom Congress gave the responsibility of determining how major parts of the new law will be implemented -- will finally realize that they don't need to give the big insurers the truck-sized loopholes they have been lobbying so hard for over the past several weeks.

It could turn out that UnitedHealth will help consumers the same way the nation's second largest insurer, WellPoint [4], did several months ago when it announced that it was hiking premiums as much as 37% for many of its customers in California. The news coverage of that proposed increase so outraged members of Congress that they mustered the gumption to finally pass a reform bill that, until then, seemed to be on life support.

I am writing this between meetings at the fall conference of the National Association of Insurance Commissioners [5] (NAIC) here in Orlando. I am one of 28 people selected by the NAIC to represent the interests of consumers. The insurance industry and other special interests are represented here by more than a thousand lobbyists. Like us, they are pacing the hallways waiting to pounce on the commissioners when they emerge from their "regulator-to-regulator" meetings that are closed to the public and the media. It is at these closed-door meetings that some of the most important discussions are taking place, and decisions are being made.

One of the most consumer-friendly provisions of the reform law requires that, beginning next year, insurers will have to spend at least 80 percent of the revenues they receive in premiums from individual and small group customers on medical claims and activities that improve the quality of care. For their large group customers, they will have to spend at least 85%. Insurers that don't meet those minimums will have to give rebates to their policyholders. Congress gave the NAIC the responsibility of writing regulations to implement this provision. Among other things, the NAIC has to determine which insurance company functions qualify as activities that improve the quality of care. We consumer representatives argue that the list of such activities should be short, and should include only those for which there is empirical evidence that they actually do improve care. The insurance industry's lobbyists have tried to get the insurance commissioners to let them count just about all of their administrative functions as quality-improvement activities.

At its summer meeting in Seattle two months ago, the NAIC approved preliminary regulations that represented a reasonable compromise between our positions and those of the industry. The big, for-profit insurers -- including United and WellPoint -- were not at all happy, so in the days leading up to this meeting in Orlando, they dispatched teams of lobbyists to state capitols across the country to cajole and threaten commissioners into seeing things their way. As I write in my upcoming book, Deadly Spin, the insurance industry is especially adept at planning and carrying out fear-mongering campaigns. The central message of the lobbyists who were deployed from coast to coast as part of their most recent fear-mongering campaign is that they will stop covering people in states where they don't think they can make the profits Wall Street expects them to make if the new "medical loss ratio" (MLR) rules don't cut them enough slack. (Insurers consider the amount of money they pay out in medical claims to be a loss.) It is the equivalent of a spoiled brat threatening to take his marbles and go home if he doesn't get to play the game by his own rules. The difference, of course, is that we are dealing not with marbles here, but with people's lives.

The All-Important "Medical Loss Ratio"

During my years as a corporate executive at CIGNA [6], another one of the big for-profit insurers, one of the things I did was to explain to the financial media why the company's MLR went up or down during a specific period of time. There is constant pressure from investors and Wall Street analysts for insurance company executives to take whatever means are necessary to keep pushing the MLR lower and lower. If they don't succeed, they get punished, often severely, in the stock market. Aetna's [7] stock price once fell more than 20% in a single day after executives disclosed that the company had spent slightly more on medical claims during the most recent quarter than in a previous period. What triggered the "sell" alarm was the company's announcement that its first quarter MLR increased to 79.4% from 77.9% the previous year.

Insurance company executives will never forget the beating that Aetna took that day. Not only did the company's market cap shrink, but so did the stock options held by Aetna's senior executives. The CEO alone lost millions in compensation by reporting an MLR that didn't meet Wall Street's expectations.

Insurance Companies Want to Keep the Champagne Corks Popping

That lesson certainly was not lost on United's executives. One of the main reasons why the company was able to exceed Wall Street's profit expectations for the third quarter that just ended was its ability to push its commercial-segment MLR, which comprises most of its customers, much lower than usual. It dropped a whopping 3.7 percentage points to 80.9%. United, and the other big for-profits, reported even bigger drops during the second quarter of this year. These are the results that bring out the champagne on Wall Street, when you reduce the amount you spend on medical care and make your customers pay more.

Insurers sent their lobbyists across the country to meet personally with the insurance commissioners (and lobbyists are as thick as thieves here in Orlando) because they want the commissioners to give them the slack they need to continue being able to push their MLRs down to what will be a legal minimum next year. The more they can get the commissioners to write the often obscure but critically important rules in their favor -- even if those rules violate the health care reform statute -- the happier it will make Wall Street. That is what is really going on here. It is as simple as that.

The timing of United's embarrassment of riches, however, is causing great concern on Wall Street. Investors and analysts are keeping up with what is going on in Orlando more than anyone except perhaps insurance company executives. They know that the commissioners are expected to complete their work on the MLR regulations Thursday morning and send their recommendations to the Secretary of Health and Human Services, as the law stipulates. In a report Tuesday morning, Carl McDonald of Citigroup [8] Investment Research wrote that United's impressive numbers "couldn't come at a worse time politically. We’re at a critical time juncture, as the Health and Human Services Secretary will soon provide final minimum MLR guidance and decide how often to grant MLR waivers. United beating its initial earnings guidance this year by over $1.6 billion pre-tax certainly doesn’t help the industry’s cause."

You're right, Carl. It is my pleasure to share your thoughts and the news about United's big increase in earnings, made possible by the big decrease in its MLR, with all the commissioners down here in Orlando. By about noon on Thursday, we'll find out whose side the commissioners are really on: consumers, whose interests by law they are supposed to protect, or insurance company executives and investors, who are far more interested in the value of stock options and earnings per share than they are with the health and well-being of their customers.