Anger over health insurance could prompt shareholder action

The recent torrent of anger over health insurers’ denial of claims highlights an issue that shareholders haven’t addressed in the past – but that could change.

Following the targeted killing earlier this month of UnitedHealthcare CEO Brian Thompson and frenzied attention on the suspect, Luigi Mangione, the subject is at the forefront of national awareness in a new way.

It’s common for Americans to have bad interactions with health insurers, and what some may not realize is that they own a very small part of those businesses. In the case of UnitedHealth Group, it’s a common holding within 401(k) plans, as it’s an S&P 100 company with a market capitalization of over $450 billion. If your assets are invested through a target-date fund or US stock market fund, you might be a shareholder through that avenue.

Yet, shareholder engagement with health insurers over one of the major issues – claims denial – does not seem to have happened, at least publicly. Among hundreds of ESG-themed shareholder resolutions filed over the past few years, it hasn’t come up. Shareholder campaigns with health-industry companies have focused on issues such as broader access to care, drug prices, and environmental risks, among others.

That could change when shareholders and advocacy groups begin filing resolutions next year – deadlines for the 2025 proxy season have mostly passed.

Complicating that is the incoming Trump administration, however. While the Securities and Exchange Commission under President Joe Biden made it difficult to keep many shareholder resolutions off proxy ballots, it is somewhat expected that the SEC under new leadership will revert to its prior stance that sided mostly with companies that sought to exclude them.

And even with the current commission, “this type of engagement might be something the company and the SEC might interpret as micromanagement, as shareholders are not really allowed to tell companies how to run their operations,” said Michael Kramer, manager and trust steward at Natural Investments, in an email. “Typically, advocacy requests information rather than weigh in on operational decision-making, so while I wonder if management would be willing to provide statistics to investors regarding claims honored and denied and the circumstances therein, I don’t know if such inquiries have been made to management.”

On top of that, shareholder resolutions that successfully get on proxy ballots and win a majority of votes are nonbinding, leaving decisions up to company leadership.

Still, it could be something institutional investors bring up with companies in their portfolios, said Heidi Welsh, executive director of the Sustainable Investments Institute. In part, that’s because the public’s anger about insurance coverage could eventually lead to new legislation to reign in business practices across the industry.

“In this country, it affects everybody,” Welsh said.

The industry is also aware of that. Among numerous business risks UnitedHealth Group outlined in its most recent annual report, one pointed to legal action by private parties or the government.

“[C]ertain legal actions could result in adverse publicity which could damage our reputation and materially and adversely affect our ability to retain our current business or grow our market share in some markets and businesses,” the company stated in the annual report.

It and other insurers have faced lawsuits over claims denial that left patients facing hundreds of thousands of dollars in medical bills. And those cases are one of the factors that informs ESG ratings, said Anna Bonomi, director of ESG sector research at Morningstar Sustainalytics.

Other factors are bigger, such as data privacy and security; product governance, or the quality of products and services; and access to basic services.

However, claim denials affect affordability and access to health care services, and when lawsuits are filed by insured patients, the ratings firm captures that data and includes it in its analysis, Bonomi said.

“Surprising or not surprisingly, most of the [denied] claims are associated with mental health, due to the nature of the disease and the gray area around it,” she said.

Those can affect a company’s controversy rating, which is part of the ESG evaluation. In UnitedHealth Group’s case, claim denials have indeed affected that, although its controversy rating by Sustainalytics around affordability and access is relatively low, at 2 on a scale of 1 to 5.

In the wider health insurance business, about 10 percent of public companies have high-risk ratings related to access to basic services, while 40 percent have a medium rating, 20 percent have a low rating, and 30 percent have negligible ratings. UnitedHealth Group is in the latter category, with its risks around access being negligible, Sustainalytics found.

This is mainly due to the company’s forward-looking policy and program, Bonomi said.

Even so, the industry has come under increasing scrutiny, including drug-price rules within the Inflation Reduction Act and recent law requiring more transparency in pricing by hospitals, she said.

The killing of Thompson has brought even more attention to the insurance business, and that will only result in more attention among lawmakers and regulators, she said.

Last week, UnitedHealth Group CEO Andrew Witty addressed the rising anger at health insurers, writing in an opinion piece in The New York Times that “the health care system does not work as well as it should, and we understand people’s frustrations with it.”

“No one would design a system like the one we have. And no one did. It’s a patchwork built over decades,” Witty wrote, adding that the company has worked to try to improve the system.

“Health care is both intensely personal and very complicated, and the reasons behind coverage decisions are not well understood. We share some of the responsibility for that.”