80% of UnitedHealthcare’s growth is coming from Uncle Sam.

We’re getting closer and closer to a Wall Street takeover of Medicare.

Last week I wrote about how a mess of their own making has been keeping UnitedHealthcare’s PR folks on clean-up detail. I’ve been there, and it’s not fun, but I know from experience that a bonus awaits the PR team if the company’s CEO is happy with their work. 

What they have to do to get that extra dough is get the media off the story of United’s botched roll-out of its plan to saddle millions of people with ER bills the company decides it would rather not pay. A bigger bonus will be in store if the PR team is better prepared when United decides the pandemic is history and the company can implement the scheme in time to have an impact on 2021 profit

Over the past decade, United has made a lot of progress on that and many other financial fronts, and Wall Street investors have taken notice. If you were one of the lucky people who had a couple hundred grand to invest in UNH stock at the beginning of 2011, for example, you would have more than $2.5 million today. And as an investor, you’d be pleased to see that during those 10 years, United’s profit margin has increased from 4.9% to 6%. And also during that time, United has become a much bigger and more powerful company, leaping from #22 on the Fortune 500 to #7.

One of the things I used to do to earn my keep at Cigna was handle financial communications to the media. I was especially busy on the days we released quarterly earnings. I’ll write about what goes on behind the scenes to get ready for those all-important four days, but for now let’s focus on how United has achieved such a long string of Wall Street-pleasing earnings reports, especIally since the Affordable Care Act was passed in 2010.

This is an appropriate time to do that because United and all the other big for-profit insurers have just begun the task of pulling together the numbers that will show if and how well those companies “enhanced shareholder value” over the past three months. United, always the first of the big for-profit insurers to report quarterly earnings, will release its 2Q 2020 financials on July 15. 

Few media outlets go to the trouble these days of reviewing and reporting on insurers’ financials, so I will try to fill that void going forward by providing you with an analysis of each of the big six insurers’ quarterly reports. I’ll explain where their money comes from and where it goes. 

What struck me while looking at how United fared financially in 2010 compared to 2020 was the fact that the company has pulled off spectacular growth during those 10 years despite losing more than a million of their individual customers. In fact, had it not been for a very generous Uncle Sam and United’s aggressive marketing to attract new enrollees in its Medicare Advantage plans, the company’s membership growth would have been so anemic over the past decade that it might not have even cracked the Fortune 100 this year.

You should care about that because, even if you are not enrolled in a United health plan, you as a taxpayer are contributing to the company’s growing profits. 

For-profit insurers like United, by the way, use a boatload of what you pay in taxes and premiums and taxes to buy back their own shares of stock. We’re talking hundreds of billions of dollars here, money that could be used, say, to eliminate deductibles and copays. They don’t do that because even though it would help their customers, it wouldn’t benefit the stakeholders those insurers care most about: their investors. Share buybacks boost a company’s earnings per share (EPS) for the benefit of shareholders, which include a company’s top executives because a sizable chunk of their compensation is paid in stock. It’s a sneaky but legal way for the CEO and a few other high-ranking employees to get bigger paychecks. (I’ll walk you through how that works in a future piece.)

I’ve known for a long time that United has few peers when it comes to grabbing taxpayers’ dollars and converting them to profits, but even I was surprised at what the company has been able to pull off since the ACA was passed. I found that almost all of the company’s health plan membership growth over the past decade has come from Medicare and Medicaid. 

United’s total revenues grew from $94 billion in 2010 to more than $257 billion in 2020. Most of that money came from private-paying customers in 2010. In 2020, more than half (53%) of the company’s total revenues came from federal and state government programs.

Had it not been for modest growth in the large-group market (generally, employers with 5,000 or more workers), United’s commercial membership would have shown a steady decline over the past 10 years. The total number of “people served” in private commercial plans increased by just 1.7 million between 2010 and 2020, from 24.7 million to 26.4 million. 

It’s quite a different story when you look at enrollment growth on the government side where membership in United’s Medicare Advantage and Medicare supplement plans--and in the Medicaid programs it manages in several states--has skyrocketed, from 8 million in 2010 to nearly 17 million in 2020. 

When you crunch the numbers a little more, you see that 80% of United’s health plan membership growth over the past decade came courtesy of Uncle Sam. 

You’ll also notice that among private paying commercial customers, revenues have increased relatively modestly during that time, from $41.2 billion in 2010 to $55.9 billion in 2020. On the government side, the growth in revenues has been nothing short of explosive, nearly tripling from $46.3 billion in 2010 to $137.3 billion in 2020.

United’s biggest cash cow hands down is the Medicare Advantage program, which Congress created in 2003 during the George W. Bush administration to lure private insurers into Medicare with the goal of eventually fully privatizing the federal program. The 2003 bill’s enticements came in the form of participation bonuses and a reimbursement mechanism that insurers quickly discovered could easily be rigged. As a result, the federal government has overpaid private insurers billions of dollars over the years, and it hasn’t done a very good job of getting that money back. Enrollment in Medicare Advantage plans doubled between 2010 and 2020 and now nearly 40% of the country’s 62 million Medicare beneficiaries are enrolled in a Medicare Advantage plan. 

United, through a partnership with AARP, has been especially successful at turning Medicare dollars into profits. Humana, where I used to work, was for years the leader in Medicare Advantage membership, but United overtook Humana a few years ago and now has about a 26% market share. Humana has about 18%, so between the two, they control close to half of the Medicare Advantage market, according to a recent analysis by the Kaiser Family Foundation. 

Democrats don’t seem to be paying much attention to how the beloved Medicare program, created in the 1960s because most American retirees couldn’t afford private insurance, is being taken over by Wall Street. Either that or they don’t care that, at the current pace of Medicare Advantage growth, the Republican goal of complete privatization is just a few years away. Many Dems in Congress, for example, sign on to a letter insurance industry lobbyists write every year supporting the Medicare Advantage program. (I’ll take you behind the scenes of the industry’s well-oiled Medicare Advantage lobbying machine in a future post.)

United’s plan to refuse to pay for a lot of its customers’ trips to the ER, by the way, doesn’t apply to its Medicare Advantage members, just to those folks who have to buy coverage on their own or through an employer. But you can be certain that some of the money United takes in from you as a taxpayer will go into United’s bonus pool to reward the company’s hard working PR team.