Monday, February 05, 2007

Medicare Privatization Boosts Insurers Bottom Lines

Humana Inc. reported gangbuster earnings for their final quarter of 2006, mostly due to growth in Medicare related products. Thanks to President Bush’s Medicare modernization Humana recorded record revenues and profits. Fourth quarter earnings rose to $155 million from $62 million in the prior period.

"Strong fourth-quarter results capped off a record-breaking year in which Medicare membership growth dramatically increased Humana's size, geographic reach and brand awareness," President and Chief Executive Michael B. McCallister said.

Humana covered 1 million people under its Medicare Advantage plan and 3.5 million under its Medicare Prescription Drug offerings. As that isn’t a dominant market share position considering the 24 million people covered by Medicare Part D, how are other companies doing?

WellPoint garnered 1.6 million of those Medicare Part D consumers and 500,000 Medicare Managed Care customers. This contributed to a good year financially according to the company’s Chief Financial Officer, David C. Colby.

"Our financial performance for 2006 was very strong, led by earnings per share growth of 22 percent for the year. We continued to price our products with discipline and significantly reduce administrative costs as a percentage of total revenue. Earnings quality was high, as evidenced by operating cash flow in excess of $4.0 billion...”

I wonder how Mr. Colby will account for the nearly $1 million civil suit settlement a WellPoint division just made with the Justice Department? It “allegedly” overcharged the Federal Employees Health Benefits program. An internal whistleblower within the company brought the issue to light. Funny how this story didn’t make the Investor Relations section of the WellPoint website.

One doesn’t have to go far to find another tainted insurer, UnitedHealth Group. Their problem isn’t cheating a key customer but executives shafting their shareholders by backdating stock options. The earnings restatements continue for UnitedHealth even as they report good earnings and growing business. Forbes had this to say about the company:

UnitedHealth Group (nyse: UNH - news - people ) turned into a bargain following a scandal over options grants that cost the chief executive his job. But United's earnings are steaming ahead. The stock is up 22% since my June recommendation. Although the option concerns have tarred the stock temporarily, the company continues to increase its growth in Medicare and government programs. Earnings should increase at a 15% rate in the foreseeable future.

What industry gets a 15% earnings growth for the foreseeable future? One with clear visibility. The President’s health care plans give preference to health insurers over health care providers. Bush plans to cut payments to hospitals caring for the uninsured to fund innovative state programs. Money funneled through insurance companies automatically takes 18.5% of the funds away from providers, to cover their 14.6% in selling, general and administrative expenses and fattened bottom lines.

An AP piece on health reform spoke to the President’s tax credit plans for “non gold plated” health insurance and which businesses might be impacted.

If the government ends up pushing for more uninsured to buy individual insurance, that could help the state Blue Cross Blue Shield insurers, who already have a strong presence on that type of insurance, said Elizabeth Senko at Williams Capital Group. WellPoint Inc., the nation's largest health insurer, is a conglomerate of the Blues and would stand to gain if more people buy individual policies, she said.

So the President’s plans could help WellPoint sell more individual policies. Who is on the WellPoint Board? “Uncle Bucky”, also known as William H.T. Bush just happens to have a seat at the table! Didn’t he achieve Ranger designation in fundraising for the Bush/Cheney campaign?

The President isn’t alone in his love for privatization and sending business to his friends. Texas Governor Rick Perry is expected to speak to the “health insurance issue” in his State of the State speech. The state already uses private companies for C.H.I.P and Medicaid managed care plans.

The Texas Legislature is also doing their part sending state work to private companies. A division of UnitedHealth just signed a deal with the Texas Department of Health and Human Services for Medicaid health care coordination. Did the state previously provide such services before sending them to the private sector?

If health insurance were a Lottery, it appears private insurance companies keep picking the winning balls. It appears our money (also known as taxes) is ending up in the bottom lines of preferred industries...

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