Given the incredibly meteoric historic earnings track record of the US Big Health Insurance Corp Industry, clearly 1%ers, it is difficult for me to see how things could ever get any better for the payers of most of these exorbitant insurance premiums…..the 99% ers, both individuals and small businesses.
Let me first show the historic earnings track record of the US Big Health Insurance Industry.
For the 7 years from 2000 to 2007, all in the pretty much regulation-free-for-business Bush/Cheney years, the total Pretax Profits of the 12 largest publicly-held Health Insurance Corps increased by an incredible 421%, going from $4.0 bil in 2000 to $21.2 bil in 2007. This was more than 3 times these companies’ comparable period Total Revenue growth of 137%.
More saliently, this 421% pretax earnings growth of the Health Insurance Industry was 5.6 times the 75% growth of the 30 pristine Dow Industrials total pretax profits over the same 7 year period.
What about the core pretax earnings of individual companies from 2000 to 2007?
Let me leave out Cigna, because it also had a huge employee retirement and investment services business, as well as a life insurance business, and a re-insurance runoff business, all back then in the earlier part of the 2000s decade.
Well, all of the remaining Big 6 Health Insurance Corps had just monster increases in earnings for that 7 year period from 2000 to 2007. Here are the percentage increases:
…..WellPoint…......+1,493%
…..Humana…….....+1,031%
…..Aetna(1)…….......+932%
…..Coventry……......+875%
…..UnitedHealth.....+532%
…..Assurant……......+421%
(1) Aetna’s 2000 starting point Core PTI excludes Goodwill Write-off Charge of $310 mil.
So what’s happened after the peak earnings of this health care industry in 2007?
Well, first there was a substantial drop in the windfall profits in the start of the Great Recession in 2008.
Thereafter, despite much success in reining in some of the nosebleed premium increases of Big Health Insurance companies by diligent, very competent Health and Human Services Secretary Kathleen Sebelius, this powerful health insurance industry, which controls much of the US Congress and State legislatures, was still able to successfully recharge its high profits, with its 2009 total profits up 20%, and with 2010 total profits up another 27%.
This takes us to the current year 2011, where some of the provisions of the new Obama affordable health care plan start kicking in.
Well, in the first half of 2011, there was a substantial earnings growth deceleration from the two earlier years, with the Total Pretax Income growth of the Big 7 Health Insurance Corps more than cut in half to only 9%. You rock Kathleen Sebelius! The 99%ers have to be pleased here with you, along with also being very pleased with the much unfairly criticized Affordable Health Care plan, very sarcastically called “Obamacare”.
So what happens in the current 3Q 2011? Something really incredible.
These Big 7 Health Insurance Corps experienced a complete reversal in earnings, from the positive 9% Total Pretax Earnings growth in the first six months of 2011, to an incredible 9% Total Pretax Earnings decline in the current 3Q 2011. You rock Kathleen Sebelius, along with the State Insurance Regulators!
And this 3Q decline in earnings was across the board for all Big Health Insurance Corps.
Below here are the individual Pretax Income results for the 3Q 2011 for each of the Big 7 Health Insurance Corps, along with a comparison with the prior year’s quarter amounts.
..............................................PTI........PTI..........Increase
...............................................3Q.........3Q.........(Decrease)
.............................................2011......2010....Amount......%
...............................................(millions of dollars)
UnitedHealth Group....MN...1,941.....2,026........(85).....(4)%
Wellpoint....................IN....1,045.....1,137.........(92).....(8)%
Aetna..........................CT.......751.......767.........(16).....(2)%
Humana......................KY......699.......622...........77.......12%
Cigna(1)......................CT.......297.......464........(167)...(36)%
Coventry Healthcare..MD......187.......292........(105)....(36)%
Assurant....................NY......115........227........(112)....(49)%
Total all 7..........................5,035.....5,535.......(500).....(9)%
Late Addition Not Included Above
HealthSpring........TN..........127..........85............42.......49%
(1) Cigna PTI includes GMIB Fair Value adjustments.
And in contrast, below here are the individual Pretax Income results for the First Half of 2011 for each of the Big 7 Health Insurance Corps, along with a comparison with the prior year’s First Half amounts.
.................................................PTI.........PTI.....................
………………………………...............First….....First….....Increase
................................................Half.........Half.......(Decrease)
...............................................2011........2010....Amount....%
.................................................(millions of dollars)
UnitedHealth Group..............4,083.......3,673........410.....11%
Wellpoint..............................2,435.......2,465.........(30)....(1)%
Aetna....................................1,720.......1,565........155.....10%
Humana................................1,223..........953........270.....28%
Cigna.....................................1,216..........861........355......41%
Coventry Healthcare(1)...........368..........436.........(68)...(16)%
Assurant.................................347..........502.......(155)...(31)%
Total all 7...........................11,392......10,455........937......9%
(1) Coventry Healthcare PTI excludes large Provider Class Action Charges and Gains.
Let me now focus on the Big 3 Health Insurance Corps (UnitedHealth Group, WellPoint, and Aetna), which generated a massive 67% of the earnings of the 12 largest Health Insurance Corps in 2010.
These three did a bit better than the other four on the 3Q 2011 earnings front, with their Total Pretax Income decline of only 5%.
But amazingly by using clever-by-half financial engineering, these Big 3 Health Insurance Corps turned their 5% Total Pretax Earnings decline in the 3Q 2011 into a 5% Earnings Per Share increase…..yes, a 10% favorable spread to them.
How did this 10% magic action occur? Well, it's predominantly due to the massive stock buyback programs of these Big 3 Health Insurance Corps, which reduce the denominator in the Earning Per Share (EPS) computation, and thus also increases the reported EPS. This is another of the many cases where 1% Big Corps have this massive economic benefit over most of the rest of US businesses, the 99%ers. The 99%ers can't take advantage of this "clever-by-half" stock buyback financial engineering. Clearly, the deck is stacked against them.
Here are the percentage increases (decreases) in the 3Q 2011 vs the 3Q 2010 for the Pretax Income (PTI), After Tax Net Income (NI), and Earnings Per Share (EPS), for these Big 3 Health Insurance Corps.
................................................................................Positive
.......................3Q 2011 % Increase(Decrease)...........Spread
............................PTI..........NI..........EPS...............EPS vs PTI
UnitedHealth.......(4)%.........0%..........3%....................7%
Wellpoint.............(8)%........(8)%........3%...................11%
Aetna...................(2)%........(2)%........9%...................11%
Average of 3........(5)%........(3)%.........5%...................10%
And EPS and EPS growth is what the stock market focuses on in valuing stocks. Thus EPS is the measure that CEOs, all company executives, and company Board of Directors are most focused on, in assessing how a company is performing.
And CEOs, and all company executives, have so much of their compensation tied to the stock price of their company’s stock. Further, they currently own a lot of the company’s stock, as well as having a substantial amount of stock options outstanding.
Thus, the 99%ers shouldn’t be fooled by these Big 3 Health Insurance Corps whining about their 5% earnings decline in the current 3Q 2011. After all, their EPS went up by 5%.
There is still a lot to be done on the Health Care Cost front, especially with the exorbitant patient fees charged by the greedy hospitals, but what has happened in 2011 with the reduction in Health Insurance Corp profits is a very favorable development to the 99%ers. This has clearly been driven by the new Affordable Health Care Plan, coupled with a diligent, energized focus on pushing back against the incredibly high insurance premium increase demands of the Big Health Insurance Corps, which in the entire Bush/Cheney years went pretty much unopposed.
