Wall Street to Elevance (formerly Anthem) Executives: Stop paying medical claims... or else.

One of the ways insurers avoid paying medical claims: jack up Americans' out-of-pocket requirements.

Wall Street gave the Blue Cross health insurer formerly known as Anthem a proper flogging on Wednesday for acknowledging that it spent more money paying patients’ claims this past spring than investors had expected. 

By the time trading on the New York Stock Exchange ended Wednesday afternoon, shares of the company’s stock had plunged 7.62%, giving Anthem–now called Elevance–the dubious distinction of being one of the market’s biggest losers of the day. 

Investors pay a lot of attention to a couple of numbers when health insurance companies announce quarterly earnings: earnings per share (EPS)–which executives can manipulate to “beat” Wall Street analysts’ profit expectations–and the medical loss ratio (MLR), which is a measure of how much an insurer paid in claims relative to the amount of money it collected in premiums.

Elevance did quite well in the EPS category. Its adjusted EPS for the second quarter (April-June) came in at $8.04 a share. That blew away Wall Street financial analysts’ average prediction of $7.77 a share. But those analysts–and investors–knew that the $624 million the company spent buying back 1.3 million shares of its own stock during the quarter helped boost the EPS well above the analysts’ consensus estimate.  (Buying back stock reduces the number of shares outstanding, which increases the value of each remaining share of common stock.)

Wall Street to insurers: Pay fewer claims

Investors undoubtedly viewed that commonly used gimmick as putting lipstick on a pig when they noticed that Elevance’s MLR for the quarter was 87%, slightly higher than the 86.8% during the same quarter a year ago. 

That meant that Elevance spent 87 cents of every premium dollar it took in from customers on medical claims and “health improvement” activities. That unexpected increase of just twenty “basis points”–to use industry jargon–caused a Wall Street freakout. Investors and analysts had assumed and hoped that Elevance would spend less, not more, on claims as its big rival UnitedHealth Group did during the same quarter.  

As Bloomberg reported: 

Investors are primed for managed care companies to report lower medical expenses than earlier anticipated since UnitedHealth’s results last week buoyed the sector. 

But Elevance’s MLR went in the opposite direction, and that sent investors running for the exits.  By the time the market closed, 2.6 million shares of Elevance stock had been traded, more than twice the usual volume.

Among the investors who saw their net worth take a big hit on Wednesday because of that plunge was Elevance CEO Gail Boudreaux, who reportedly holds around 27,000 shares of her company’s common stock, most of it coming from stock grants and options Elevance’s board of directors have given her over the years. (The vast majority of her total compensation comes from stock options and grants.) Between 9:30 a.m. and 4 p.m. ET Wednesday, Boudreaux had lost more than $1 million on those 27,000 shares.

You can be certain Boudreaux and her fellow Elevance C-Suiters, all of whom are also less wealthy today than they were Wednesday morning, are setting things in motion to make similar Wall Street bloodbaths less likely in the future. 

Insurance company executives have several levers they can pull to push the MLR lower–all of which penalize customers in one way or another–and get out of the Wall Street doghouse. Elevance customers can expect higher premiums, more claim denials, increased prior authorization demands, and higher out-of-pocket requirements in the future. (One of the reasons I left Cigna was because I could not in good conscience be a cheerleader for high-deductible health plans. The more people have to pay out of their own pockets, the fewer claims insurers have to pay. I now lead a coalition of organizations focused solely on eliminating or at least drastically reducing out-of-pockets.)

 And I wouldn’t be a bit surprised if some Elevance customers with higher than average medical claims get “purged.” (More on that below.) 

What happened to Elevance is the most recent evidence that Wall Street is more in charge of the U.S. healthcare system than ever. 

That’s another reason why I left the health insurance business. As I told members of the Senate Commerce Committee during my first time out as an industry whistleblower in 2009:

The average family doesn't understand how Wall Street's dictates determine whether they will be offered coverage, whether they can keep it, and how much they'll be charged for it. But, in fact, Wall Street plays a powerful role. 

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…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.

To help meet Wall Street's relentless profit expectations, insurers routinely…dump small businesses whose employees' medical claims exceed what insurance underwriters expected. All it takes is one illness or accident among employees at a small business to prompt an insurance company to hike the next year's premiums so high that the employer has to cut benefits, shop for another carrier, or stop offering coverage altogether — leaving workers uninsured. The practice is known in the industry as "purging." 

Increasingly, Americans with insurance can’t use it without going broke

One of the most insidious ways insurers avoid paying medical claims, however, is by forcing more and more Americans into the ranks of the underinsured by constantly jacking up their out-of-pocket requirements. That’s why most of the more than 100 million Americans with medical debt have health insurance. 

The Commonwealth Fund has estimated that more than 43% of American adults–including people who are covered through an employer or an ACA (Obamacare) marketplace plan–are underinsured, primarily because of unaffordable out-of-pockets.

And all too many of them have no alternative but to plead for money on GoFundMe–like Justine Tarleton, an Anthem Blue Cross health plan member and mother of two boys who was diagnosed with a brain tumor in 2019. A family friend started a GoFundMe campaign for Justine because her copayments, deductibles, and other out-of-pockets total nearly $9,000 a year. 

Imagine how many underinsured Anthem/Elevance policyholders could avoid having to ask strangers for money if the company had used the $624 million it spent this spring buying back its own stock to reduce Justine and other patients’ out-of-pockets.

Next week I’ll do a deeper dive into Elevance’s second-quarter financials. You’ll see why all of us, even those of us who are not Elevance customers, are contributing to the company’s profits.