Insurers Quit When they Have to Pay for Actual Health Care
Listen When They Tell Us Who They Are
By now, Healing and Stealing readers know that private health insurance is a failed social experiment that has strewn hundreds of thousands of unnecessary deaths and millions of bankruptcies in its wake. Not really news. Once in a while, though, the industry tells the truth about its business model. It’s worth listening when company executives and the stock market let us know who they are and what they care about.
Over the past month and a half, insurance giants CVS Health and UnitedHealth Group have made it clear that spending the money employers, governments and individuals pay them for health coverage on actual medical care is a catastrophic corporate event.
CVS Subsidiary Aetna Bails on Obamacare Exchanges: In a May 1 call with investors to discuss the company’s earnings, CVS Health Corporation Chairman and CEO J. David Joyner said “[w]e are disappointed by the continued underperformance from our individual exchange products and have recently determined there is not a near or long-term pathway for Aetna to materially improve its position in this product. As a result, we've decided that effective 2026 we will exit the states in which Aetna independently operates ACA plans.”
CVS Health Executive Vice President and Chief Financial Officer Thomas F. Cowhey added that the company is projecting “losses in this business will be between $350 million and $400 million for the full year 2025.”
The day after the announcement, Modern Healthcare writer Nona Tepper clarified what it means for an insurance company to “underperform,” and what CVS means by “losses.” Tepper reported that the EvenSun consulting firm analyzed state regulatory filings compiled by the National Association of Insurance Commissioners and found results for 16 of the 17 states in which CVS/Aetna sells plans on the exchanges. According to Tepper, EvenSun found that Aetna reported “an average net loss of nearly 8%” in the company’s exchange plans across those states, along with “a 96% medical loss ratio.”
“Medical loss ratio” is corporate speak for “percentage of our premiums that we spent on medical care for the people we cover.” What’s left over after “medical loss” is the skim – the money used to pay for administrative costs, profit and other non-medical overhead costs. In 2010, private health insurers were spending so little money on patient care that Congress included a provision in the ACA to try to force them to spend a minimum of 80% of the premium dollars they collect from individuals and small groups on medical care, along with 85% of money collected for plans sold to larger groups.
Healing and Stealing reached out to EvenSun for a copy of their analysis to confirm Tepper’s reporting. We’ve not heard back. Assuming Tepper’s account is accurate, CVS – a company that Wall Street valued at more than $80 billion at press time – says it can’t survive in a market where they can only skim 4% of the premiums that patients pay for coverage.
CVS/Aetna’s decision to leave the exchanges casts unflattering light on claims of private sector efficiency. The federal government spent just 1.1% of Medicare expenses on administration in 2023, according to the annual report of the Medicare Trustees (see Table II.B.1, page 11).
So CVS/Aetna is getting out of the Obamacare business because they can’t make money running their business more than 3 times less efficiently than the federal government runs Medicare.
Of course, there’s a lot more nominally “administrative” cost in Medicare than what the table shows. Now that private insurers are the vehicle for health benefits for the majority of people enrolled in Medicare, the bloated amount that private insurance skims after its “medical losses” from employers and non-elderly, non-disabled individuals, has been packed into the massive overpayments that the feds make to the industry every year. But that’s political graft from decades of bipartisan privatization, not legitimate administrative expenses for a public program.
UnitedHealth Spends A Little Money on Seniors - Share Price Tanks: UnitedHealth Group, the nation’s largest private health insurer, sparked its own Wall Street “medical loss” panic a few weeks ago, although perhaps we should say “medical care” panic. Using twisted financial jargon like “medical loss“ to describe spending on medical care has been an emblem of public disgust with the insurance industry and a source of mockery for years, so United now calls it “medical care ratio.”
Last December, United predicted that it would generate roughly between $25.7 billion and $26.1 billion in profits this year (“net earnings” - see A Little Extra for the Data Curious below). On April 17, United revised its profit forecast down to a rough range of $22.5 - $22.9 billion. According to the press release announcing the revised projections, compared to the first quarter of 2024, from January to March of this year across all of its insurance plans, United’s medical loss care ratio rose from 84.3% to 84.8%, which means they were still able to skim more than 15% off the top of every premium dollar.
Wall Street lost its mind.
Word had leaked after the New York Stock Exchange closed the night before the announcement. United shares cost $585.04 in New York when the market closed Thursday April 16, but after overnight trading on overseas markets, the stock opened at $481.76 Friday morning, then dropped another $27 through Friday, to close at $425.33. In one day, United’s stock lost more than 22% of its value. It has dropped even further since, which we’ll get to in a moment.
Take a machete to United’s thicket of corporate euphemism and it’s clear the company changed its 2025 profit projection for two reasons. Elderly people in United’s Medicare Advantage plans went to the doctor and got treatment in hospital outpatient departments more often during the first quarter of 2025 than company executives guessed they would, and people enrolled in United’s health plans turned out to be sicker than United thought they would be.
“Heightened Care Activity” and “Profile” Changes: When United looked at its first quarter results, it found what it calls “heightened care activity” among Medicare Advantage patients. The company had planned on care activity heightening at the same rate that it did in 2024, but since January, people enrolled in United’s Medicare Advantage plans started going to doctors’ offices and hospital outpatient clinics more frequently than United predicted.
Along with the rapid heightening of care activity in its Medicare Advantage plans, United also found “unanticipated changes in the profile” of members in some of its other plans. In English that means “our patients are sicker than we thought they were.”
Well, maybe. The problem, then-CEO Andrew Witty told investors and analysts on a conference call, is that a number of people leaving other health plans and coming to United hadn’t had very much “engagement” with the medical system before joining United. Payment in Medicare Advantage and a number of plans managed by United’s Optum Health subsidiary includes adjustments for each patient’s “risk profile,” which is built on a patients’ documented past treatment, i.e. “engagement.”
United is reportedly under federal investigation for boosting reimbursement by overstating how sick its patients are. The company assigns in-house doctors to review patients’ charts for supposedly missed diagnoses, and company nurses to add new diagnoses after using in-home wellness visits to make “risk assessments.” A Wall Street Journal investigation of United found $50 billion worth of overpayments due to these risk assessments. United doctors and nurses diagnosed 66,000 patients with diabetic cataracts even though they had already undergone lens replacement surgery, a 21st century bureaucratic medical miracle. At the same time, United denies payment for treatment for millions of people because they think patients aren’t as sick as their doctors think they are or because the insurer knows appropriate care better than patients’ doctors.
In April, Witty apologized for the company’s poor financial performance, but assured investors and stock analysts that the conditions leading to a mere $22+ billion in profits and a half-percentage point increase in the amount of premiums spent on patients’ health care “are highly addressable as we look ahead to 2026.”
United is “addressing” its problem in part by “consistently engaging with members in their homes and in post-discharge settings,” and “appropriately assessing and updating the health status of new patients.”
United may be managing medical losses care with a warm embrace of its patients, applying supportive preventive and early interventions through house calls and post-discharge instructions, to make sure patients can get the care they need as soon as and as efficiently as possible.
Or, given that the techniques Witty described are the same ones generating investigations and shocking press exposes, United may be solving its problems by telling more lies to the government. Time will tell. “Engagement,” Witty noted, “remains the key.”
A CEO Departs: United’s stock price has continued to fall since the mid-April shock. It closed at $301.41 on Friday, barely half of its value on April 16 and down another 33% from the one-day slide on April 17.
Apparently, more patients have become determined to get “care activity,” not just seniors. On May 13, United replaced Witty with former CEO Stephen Helmsley and suspended even the new lower 2025 profit outlook as “the medical costs of many Medicare Advantage beneficiaries new to UnitedHealthcare remained higher than expected” and “care activity continued to accelerate while also broadening” to people enrolled in different types of health plans beyond Medicare Advantage.
Two days later, The Wall Street Journal reported that the Department of Justice’s Criminal Division has launched a fraud investigation focused on United’s Medicare Advantage plans. The probe comes on top of an ongoing Biden-era antitrust probe of United and a reported DoJ civil investigation of the use of diagnoses to increase reimbursement, launched in February. Although United isn’t implicated, the Trump Administration’s decision to join a whistleblower lawsuit alleging that Humana, Elevance (formerly Anthem) and Aetna paid kickbacks to insurance brokers, hasn’t helped health insurance stocks generally.
It’s valuable to expose the inner workings of wealth extraction, and the whistleblower in the kickback case deserves credit for courage in coming forward. But having watched HCA and Tenet each rise from the ashes of their own national record-setting health care fraud settlements to remain the largest (HCA) and one of the largest (Tenet) hospital chains in the country, Healing and Stealing is skeptical that by itself civil or criminal fraud cases will make any difference in overall health care costs or access, or even have much of an effect on the business results of the insurance industry over the medium term.
What’s remarkable about the United medical loss care stock panic is that the company’s shares lost more than 20% of their value overnight even though executives still expected enormous profits and the company’s skim off the top of premiums remained nearly fourteen times as much as the federal government spends administering Medicare.
United has since suspended the profit estimate, but it will take a lot of “care activity” to eat into the full $22 billion+ they expected to extract from the public. Aetna’s and United’s actions and the stock market’s reactions should make clear to everyone where the incentives lie. A tiny uptick in spending on medical care for people who have paid for that care in advance generates a wave of investor panic, and a 4% margin causes a major insurer to flee an entire market segment. Private health insurance “works” only for Wall Street, company executives and the politicians they buy. The rest of us? Good luck with all that “care activity.”
A LITTLE EXTRA FOR THE DATA CURIOUS
“more than 3 times less efficiently”: Per the screenshot in the text, 11.5 Billion/$1.037 Trillion = 1.1% in Medicare administrative costs, where 4%/1.1% = 3.64.
United Profit Projection: Like most companies, UnitedHealth Group projects its profits for the coming year as “net earnings per share.” “Net earnings” is one of the most common measures of a company’s profits, also reported as “net income” - Investopedia definition here. “Net earnings per share” simply means “how much profit did (or will) we generate for each share of our common stock that’s floating around?” To get a total of United’s projected profits requires multiplying net earnings per share by the number of shares outstanding.
United had an average of 912 million shares of common stock outstanding during the 1st quarter of 2025, according to their quarterly report to the SEC, Form 10-Q for the period ending 3/31/2025 (see page 2). For the initial estimates, first quarter shares outstanding multiplied by $28.15 to $28.65 yields an estimate of roughly $25.7 billion to $26.1 billion in projected profits in 2025. The April 17 adjustment reduced United’s forecast of net earnings per share to between $24.65 and $25.15 per share, which knocked expectations for adjusted earnings down to around $22.5 - $22.9 billion.
We use the word “rough” to account for the possibility that United expects to have more or fewer shares outstanding during the year, and may have made their earnings per share calculations using a slightly larger or smaller denominator.
*Tenet 1 of the 10 or 20 Largest Hospital Systems: Hospital companies are measured in several ways: number of hospitals, bed count, patient volume, revenue, etc. Tenet, who won the title of all-time health care fraudster under the name National Medical Enterprises before ceding it to Columbia/HCA (later HCA), has sold off a chunk of its hospital portfolio over the past few years to consolidate in strong markets and shift resources to outpatient facilities and ambulatory surgery centers. It’s difficult at the moment to give a precise size ranking to the company. They’re big, though - ownership interests in 49 acute care and specialty hospitals, another 25 surgical hospitals, 134 outpatient facilities, and 520 ambulatory surgery centers. Big health care companies have a knack for surviving major fraud scandals and thriving.