by Wendell Potter
Center for Media and Democracy
April 25, 2011 - 10:18am
If I had stayed in the insurance industry, my net worth would have spiked between 4 p.m. Wednesday and 4 p.m. Thursday last week -- and I wouldn't even have had to show up for work.
I'm betting that just about every executive of a for-profit health insurance company, whose total compensation ultimately depends on the value of their stock options, woke up on Good Friday considerably wealthier than they were 24 hours earlier. Why? Because of the spectacular profits that one of those companies reported Thursday morning.
Among those suddenly wealthier executives, by the way, are the corporate medical directors who decide whether or not patients will get coverage for treatments their doctors believe might save their lives.
UnitedHealth Group, the biggest health insurer in terms of revenue and market value, earned so much more during the first three months of this year than Wall Street expected that investors rushed to buy shares of every one of the seven health insurers that comprise the managed care sector. In my view, it would be more accurate to call it the managed care cartel.
UnitedHealth is always the first of the big seven to announce earnings every quarter, so investors consider it a bellwether. If UnitedHealth exceeds Wall Street's expectations, as it has been doing consistently, investors assume that the other six will do likewise. Sure enough, all seven -- Aetna, CIGNA, Coventry, Health Net, Humana, UnitedHealth and WellPoint -- saw their stock prices close Thursday afternoon at or near 52-week highs.
UnitedHealth's shares shot up more than 8 percent during the day. Increases of that magnitude are so rare that I could almost hear the champagne corks popping in the Minnetonka, Minnesota office of UnitedHealth's CEO, Stephen J. Hemsley.
Wall Street analysts had worried that health insurers would have such a hard time complying with the provisions of the year-old health care reform law that their profit margins would decline. Those concerns were put to rest when UnitedHealth reported that its operating margins were "stable" at 8.7 percent in the quarter. The company's stellar performance should also put to rest -- forever -- the myth that "ObamaCare" is "bleeding insurers dry," as industry apologist Sally Pipes contended in a Feb. 24 commentary in Forbes.
Noting that UnitedHealth's 13 percent increase in profits prompted the company to raise its full-year earnings forecast, the Minneapolis Star Tribune opined, "Life under new health care reform laws may not be so rough after all."
Indeed. Consider these numbers: UnitedHealth's profit during the first three months of this year increased to $1.35 billion from $1.19 billion a year ago. When you do the math to determine the company's earnings per share, the result is nothing short of jaw-dropping. On that basis, UnitedHealth's profit jumped from $1.03 to $1.22 per share. Wall Street analysts had been expecting the company to earn just 89 cents a share. When you beat Wall Street's expectations by 33 cents a share, you have accomplished something that most CEOs can only dream about.
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