Wendell Potter on For-Profit Health Insurance

Wendell Potter, who retired last April from his job as head of communications for the CIGNA health insurance company, has been in the news since then as a whistle-blowing critic of the insurance industry. Today I belatedly read his June 24 testimony to the U.S. Senate Committee on Commerce, Science and Transportation (see here) watched his July 10 interview with Bill Moyers (see here).

Potter is especially clear about the way short term considerations drive the behavior of for-profit insurers:

The top priority of for-profit companies is to drive up the value of their stock. Stocks fluctuate based on companies’ quarterly reports, which are discussed every three months in conference calls with investors and analysts. On these calls, Wall Street investors and analysts look for two key figures: earnings per share and the "medical-loss" ratio - the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits.

To win the favor of powerful analysts, for-profit insurers must prove that they made more money during the previous quarter than a year earlier and that the portion of the premium going to medical costs is falling. Even very profitable companies can see sharp declines in stock prices moments after admitting they’ve failed to trim medical costs. I have seen an insurer’s stock price fall 20 percent or more in a single day after executives disclosed that the company had to spend a slightly higher percentage of premiums on medical claims during the quarter than it did during a previous period. The smoking gun was the company’s first-quarter medical loss ratio, which had increased from 77.9% to 79.4% a year later. (slightly edited)

The problem with investor ownership and for-profit insurance isn't the people. Over the years I've studied a number of for-profit companies. The people I dealt with and observed seemed just as caring and idealistic as their counterparts in the not-for-profit world.

And the problem isn't profit per se. Although in most of my years of clinical practice I was paid as a salaried member of a not-for-profit group, I did ten years of fee-for-service practice. As a solo psychiatrist I typed my own bills and gave them to my patients each month. They brought a check to a subsequent appointment and handed it to me. This ritual made it crystal clear that I was running a for-profit enterprise, albeit a tiny one.

I was entirely comfortable with the ethics of my for-profit practice. I set my fees and could lower them if I chose to do so. When discussing fees I said "the aim is to make an arrangement that is fair to both of us." The owner of the enterprise (me) and the investor/purchaser (my patient) could look each other in the eye. Parsing what mutual fairness entailed was often part of the therapeutic process.

Public companies are large, impersonal structures. In particular, the equity owners are investors guided by economic rather than caretaking values. They're not challenged by looking the patient directly in the eye and having to see and take responsibility for the impact of corporate decisions.

I run the ethics program at a not-for-profit health insurance company. Like all other participants in the U.S. system we're subject to market pressures for efficiency. I think that's a useful pressure, just as the pressure to make treatment affordable for my fee-for-service patients was. But we're not subject to quarterly conferences with investors whose only concern is with financial performance.

If you look at the video you'll see that Potter looks "corporate" and speaks calmly. His clear discussion of the structural impact of equity ownership on the health system is a valuable contribution. I hope we hear reverberations of his analysis in President Obama's speech tomorrow night!