Health insurance prices soaring

Despite modest increases for most health care services, firms in the highly concentrated insurance industry are gouging because they can

The national uproar over rising prices is justified. Every family on a budget — and that’s most of us — suffers when prices rise faster than wages for the basic necessities of life like food, fuel, housing and health … Whoops, I was about to write health care, but when I dug deep into yesterday’s inflation report, I discovered medical services prices rose just 3.5% over the past year, less than half the 8.3% rate for all goods and services.

This is pretty much in line with the past decade’s trend in overall medical prices, which have gone up only 2.8% per year on average. That’s one reason why overall healthcare spending as a share of the economy remained relatively stable over the past ten years at around 17-18% of gross domestic product.

That is, it was stable until COVID-19 came along. The massive government injection of cash into hospitals and physician offices, just as the economy was going into a tailspin, ballooned the sector’s share of GDP to 20%. In other words, health care spending remained steady while the rest of the economy tanked.

However, the economy has recovered rapidly from the pandemic lockdowns. The latest government forecast projects health spending’s share of the economy will return to pre-pandemic levels by the end of this year, largely because prices in the sector have remained relatively tame while prices elsewhere skyrocket.

So if prices for the delivery of health care remain under control, why are insurance prices, which presumably are based on the underlying cost of care, soaring? Last year, prices for health insurance rose a stunning 10.4%, which is even faster than inflation in the rest of the economy. While insurance prices are notoriously volatile and are even known to decline in some years (it’s known as the insurance cycle — don’t ask), prices for coverage have gone up on average 5.3% over the last decade or nearly twice the overall rate of health care inflation.

How can that be? While the mainstream press has focused on hospital concentration as a major culprit behind rising health care costs, very little attention has been paid to insurance industry concentration.

Just four publicly-traded insurance companies (UnitedHealth Group, Anthem, Aetna and Cigna) control 48% of the private health insurance insurance market. The top ten organizations (five of the next six are nominally non-profit) control 71% of the market.

The American Medical Association’s 2021 survey of insurance industry concentration found 73% of the the nation’s 384 metropolitan areas are “highly concentrated,” according to federal guidelines. Just one insurer had over half the market in 46% of those regions.

With access to medical services returning to normal, you’d think the profits for health insurers would be taking a hit. Not so. Samantha Liss at HealthCareDive this week reported insurer profits for the first quarter of this year saw every player posting sizeable gains over a year ago, including 21% higher for Centene and 13% higher for Molina (both highly dependent on Medicaid programs); 12% higher for Humana (highly dependent on Medicare Advantage); 8% for Anthem; 4% for CVS/Aetna; 3% for UnitedHealth, the nation’s largest insurer; and 2% for Cigna.

Somewhat higher costs = much higher profits

My former colleague Bob Herman, now at Stat, culled through annual proxy statements to report today that the CEOs at those seven firms raked in $283 million in salaries and bonuses last year. Herman points out that insurers, whose profits over the life of the insurance cycle are guaranteed since they recoup any short-term losses with higher rates in the succeeding year, have little interest in haggling for lower prices. The more health care providers charge, the more money insurers make since they eventually pass along their higher costs to their customers — the nation’s employers who purchase health insurance.

“Employers in general are not well-served by the carriers,” Sabrina Corlette, a health insurance researcher and professor at Georgetown University told Herman. “The incentive structure is messed up. At a certain point, when is the employer community going to start storming state capitals and Congress with pitchforks?”

If past is prologue, the answer to her question is never. One reason is that CEOs at many major companies are very familiar with the tactics being used by their compatriots in the insurance industry and have no interesting in calling them out. A new survey by the Groundwork Collaborative, a progressive think tank, shows that corporate CEOs and their finance officers admit on earnings calls that they are using war- and COVID-driven supply chain disruptions to hike prices over and beyond the actual increased costs they are experiencing.

“Companies that historically might have kept prices low to pick up profit by gaining additional market share are instead using the cover of inflation to raise prices and increase profits,” Groundwork executive director Lindsay Owens wrote in this recent New York Times op-ed. “Consumers are now expecting higher prices at the checkout line, and companies are taking advantage. The poor and those on fixed incomes are hit the hardest.”

Food, oil, household goods — the companies in the survey represented a broad cross section of the U.S. economy (although it didn’t include any insurers). Clearly, monopolistic pricing power is driving a significant share of today’s inflation.

President Biden this week correctly noted that inflation has become America’s top “kitchen table” concern. But where’s the jawboning of America’s corporate leaders? He should take a page from one of his Democratic predecessors, John F. Kennedy, who in a 1962 press conference called out steel industry executives for price hikes that were “wholly unjustifiable and irresponsible defiance of the public interest” at a “serious hour in our nation’s history, when we are confronted with grave crises in Berlin and Southeast Asia, when we are devoting our energies to economy recovery and stability.”

At this serious hour 60 years on, when the U.S. is backing Ukraine’s valiant fight against the kleptocratic-autocratic Putin regime in Moscow and Covid still poses a serious threat to our economy, is the current price gouging any less irresponsible or in any way justified? Clearly, our own kleptocrats are taking advantage of the current situation.

Certainly, some of the recent short-term price spikes were inevitable given the war- and Covid-driven supply disruptions. But enough time has gone by for the economy to adjust, and it hasn’t.

If Democrats facing tough election fights in the mid-term election are looking for an answer to voters’ chief economic frustration, they should point out repeatedly who’s behind ongoing and excessive price hikes — the leaders of America’s monopolized corporate sectors, our own version of the global kleptocratic class that is undermining peace and prosperity.