Profits Before Patients?
For nearly 20 years, Wendell Potter, 57, had a six-figure job inside the health insurance industry, most recently as Vice President of Corporate Communications for the CIGNA Corporation. He left last year and is now a Senior Fellow on Health Care with the Center for Media and Democracy, a nonprofit group dedicated to uncovering the corporate and public relations influences over government, opinion, and public policy.
As insurance industry lobbyists flock to the nation’s capital to keep the lucrative industry alive, Potter is going public. He spoke out against the industry for the first time last month, testifying before the Senate Commerce Committee.
He talks to Bill Moyers on PBS Friday, July 10th and to Jane Akre, News Editor of IB News about the kind of reform insurers are seeking that has more to do with Wall Street than bringing health care to millions of Americans living on Main Street.
Akre: “You were with big insurance companies for two decades?”
Potter: “Yes, almost 20 years doing PR (public relations) with the insurance industry. I started out as a newspaper reporter out of college in Memphis and Nashville. I’ve been doing PR in one way or another since 1978. First was Humana in their Louisville, KY headquarters, then in 1993 until 2008, CIGNA Corporation as the chief spokesman or the company.”
Akre: “Why did you leave? How did you feel about your job?"
Potter: “Most of the time I was a believer, I felt what I was saying was true, though I knew often when I was responding to reporters’ question I was providing selective information. I would not purposely mislead a reporter or knowingly lie, but after a while you become aware of the fact I was obscuring information rather than providing it. It became an ethical dilemma. I just didn’t want to do it anymore.
“One of the last things I did was a very high profile case. It involved a 17-year-old year old girl, Nataline Sarkisyan. At the end of 2007 in California her doctors at UCLA said her only hope was a transplant. CIGNA denied coverage for the transplant. Her family went to the media and organizations that helped them level a protest. They got so much attention that CIGNA eventually agreed to cover the procedure. Unfortunately it came hours after the girl died.
“We’ll never know whether the transplant might have worked, but the family didn’t have the means to pay for the transplant. The only hope they had was to change CIGNA’s mind, but it was too late.”
Akre: “What was your part in that?”
Potter: “The Chief Medical Officer and I were the two people authorized to talk about the case. Because of the nature of it and the fact that Ms. Sarkisyan died, there was a great uproar of support for the family and I got a lot of hate e-mails. It was a difficult time to live through. It was toward the end, it was one of the things that ultimately made me decide I had to change.”
Potter says an event began his transformation two years ago. It happened during a July 2007 visit to his parents in Kingsport, Tennessee.
Potter: “I picked up the local newspaper and saw an organization was holding a health care expedition at the fairgrounds. They were bringing in doctors and nurses into the Wise County fairgrounds in Wise, Virginia, in the heart of the coal mining area of Virginia. I drove up out of curiosity and was overwhelmed to see all of the cars parked.
“When I went inside the fairground gates, I saw hundreds and hundreds of people standing in the rain waiting for free care because they had no other means of getting care. And the care was being provided in animal stalls. Workers had worked for days cleaning out the stalls. It hit me like a ton of bricks. Where was I?
“It was like a foreign country, but this was the United States. That began to change my thinking. Two or three weeks later I was in Philadelphia and I was on the corporate jet and there was a flight attendant and she brought me my lunch on gold china with gold silverware. And I was sitting there on a luxurious leather chair. And it dawned on me that somebody’s premiums were paying for the jet fuel for me to travel like that. They had certainly no access to health insurance coverage if they were underinsured, and if they had insurance, they were unable to afford care because they had such high deductibles.”
Editor’s Note- * The organization is called Remote Area Medical or Ram USA and is operated out of Knoxville, Tennessee by Stan Brock. He initially started providing care to remote villages in South America but soon realized there was just as great a need in the U.S. where there are nearly 50 million uninsured people, and 25 million underinsured. About 60 percent of Ram USA’s work is now in the U.S.
Potter says Wall Street plays a powerful role in the insurance industry.
Potter: “Their top priority is to drive up the value of the stock, which is discussed every three months with investors and analysts. Wall Street looks at two key figures – earnings per share and the medical-loss ratio, or medical ‘benefit” ratio. That is the difference between what the company pays out in claims and what it has left over to cover sales, marketing, underwriting, administrative costs, and profits. To win the favor of analysts, for-profit insurers must prove they made more money during the previous quarter than a year earlier.
“For the institutional investors who own these companies, the pressure is intense. They have to release their financial results every three months and they know the results are going to be scrutinized. If the investor thinks they haven’t done an adequate job managing the company, it will be punished and the stock price will decline. I’ve seen when a company disappoints Wall Street. Their stock drops 20 percent or more in a single day. “
Akre: “I think most people don’t realize that insurance companies don’t make their profit from premiums.”
Potter: “A big portion of the income of an insurer does come from investment gains and losses. What the insurers do is take money they receive from premiums and invest that money – in various ways. Typically, they will invest in index funds and real estate holdings. It runs the gamut, they want to be broad to protect against swings in the market just like a typical investor would try to diversify their holdings.
“One of the measures investors look for is a medical-loss ratio. That is a percentage. The top number will be the percentage of that number that is used to pay claims. That medical loss ratio is about 80 percent. 80 percent is used pay claims, so 80 cents of every dollar is used by the insurance company to pay claims.
“The 20 cents is called administrative expenses. The components of that include marketing, sales, underwriting, executive compensation, bonuses, and profits. Insurers will lead you to believe a big chuck of that money will benefit consumers through disease management programs, but it is not close to the majority being spent.
“With underwriting, they want to make sure when they have a customer, they make a profit on that business, so they estimate what they expect the claim to be and how many claims will they file. It’s guestimating claims. The result is that they use underwriting to keep premiums pretty high for small employers.
“On the sales and marketing side, they devote an inordinate amount of that money to stealing customers from each other rather than offer insurance to someone for the first time. They try to get the best employers, but the employer base is declining. The pie is shrinking. When a customer signs a contract with a company it has a date for a renewal period that the customer can renew or put the business out to bid. That happens quite often. The customer wants to determine if they can get a better deal somewhere else. All the big companies pay attention to that. They go after the largest customers and the best business. They try to avoid the smaller customers.”
Akre: "We hear about pre-existing conditions or people being dropped by their insurers to keep profits up too?"
Potter: “One of the things I provided testimony about to the Senate Commerce Committee is the process of purging. Underwriters determine the claims filed are greater than the profit and they’ll jack the premiums up so high the customers will have to walk away. Usually they are hard pressed to provide another carrier, so they’re often stuck. Their alternatives are to cut benefits, or shift the cost to the employees or drop coverage entirely. More are doing that. Since 1993, the percentage of small business offering coverage has dropped from 61 to 38 percent. A lot of that is because they’re priced out of the market, they’ve been purged.”
Potter says insurers will determine if a sick policyholder may have omitted a minor illness or a pre-existing condition and then they can use that as a means to cancel the policy, even if the premium has always been paid on time.
An investigation by the Energy and Commerce Committee found that when a company canceled the coverage of 20,000 people over five years, the company avoided paying $300 million in claims.
Akre: “Does that mean they get rid of sick employees?”
Potter: “It’s clear they know, they’re not supposed to have access to health records. When you see a layoff, look for employees who might cost them more.”
Akre: “Is the single-payer system a good direction to go in? It is something Congress should give serious consideration to?"
Potter: “Sen. Baucus has said that single-payer is off the table. The reason is the insurance lobby is so generous they’re not about to wipe out the insurance industry and the insurance industry is fighting the single-payer system.”
Akre: “How are they doing that?”
Potter: “They put an enormous amount of resources to scare people from single payer and they utilize scare tactics. They use conservative radio hosts, editorial writers and pundits, who are among the shills for the industry. And they can rely on them because they are ideological allies. They’ll fund a front group like Conservatives for Patients’ Rights to carry that message using selective anecdotes from Canada or the UK.”
Editors Note * - SourceWatch, is an online service created by the Center for Media and Democracy to identify the people behind groups and organizations. It says Conservatives for Patients’ Rights is a front group run by Richard Scott. The Washington Post identifies Scott as a former hospital chief executive and multimillionaire investor, who founded the group, spending $5 million of his own money and up to $15 million from supporters to build a resistance to any government-run program. According to the online news site, Politico, Scott’s public relations campaign was coordinated by CRC Public Relations, the same firm that masterminded the "Swift Boat attacks" against 2004 Democratic presidential candidate, John Kerry, reports the Washington Post.
The ads the group runs began airing in May and feature horror stories about the problems patients have finding medical care in Canada and the United Kingdom.
Potter: “It’s called Medicare in Canada and it’s comparable to Medicare here. We have government-run Medicare and it’s been a godsend for people who enroll in those plans. If it hadn’t been for Lyndon Johnson in the 60s who was instrumental in getting it passed, I can’t imagine what situation our senior citizens would be in today.”
“They say you’ll have a beauocrat between you and your doctor. But what we have is worse than that. We have people standing in long lines to get care in animal stalls or a corporate beauocrat standing between you and care. People in Canada like their system. This is the same thing they did in the Clinton years. It’s frightening if you are not aware of who is behind the groups.” #
See your local listing to see the rest of the interview with Wendell Potter on Bill Moyers Journal, Friday July 10 on PBS.