Health Insurance Industry's Profit Margins Rank #86

Click to enlarge.

Private health insurance companies have come under attack lately for making profits, even "record profits," allegedly because of mergers, lack of competition, and monopoly power.

Health Care for America Now: Simply put, the private insurance companies have secured monopolies or tight oligopolies and exercised that power to put profits ahead of patients.

There were no actions taken against anticompetitive conduct by health insurers in the last administration, in spite of the fact that cases by state attorneys general have secured massive fines against these insurers. A lack of antitrust enforcement has enabled insurers to acquire dominant positions in almost every metropolitan market. Unfortunately, this toxic market structure has a profound effect on the nation’s ability to achieve the goals of health care reform.

President Obama: There have been reports just over the last couple of days of insurance companies making record profits, right now," Obama said during a prime-time news conference. At a time when everybody's getting hammered, they're making record profits, and premiums are going up. What's the constraint on that? ... Well, part of the way is to make sure that there's some competition out there.

As the table above of Profit Margins by Industry shows (click to enlarge, data here for the most recent quarter), the industry "Health Care Plans" ranks #86 by profit margin (profits/revenue) at 3.3%. Measured by profit margin, there are 85 industries more profitable than Health Care Plans (included Cigna (CI), Aetna (AET), WellPoint (WLP), HealthSpring (HS), etc.).

And isn't one reason for a lack of competition that competition for health insurance across state lines is prohibited, creating in effect 50 state health insurance "cartels"?

Disclosure: No positions

Comments

[Jade Queen:]

I read this with great interest.

Letting insurance companies grow bigger than a particular state also would have risk, it seems to me. I see this as one of the things wrong with Fannie and Freddie--too far away from collateral.

A prime issue in health insurance that I don't see addressed is that culture and values affect how people heal or not. What a person believes matters.

I would designate my accupuncture practice as my primary care. It costs me $15 per hour to go there if I sprain or pull something, my usual issue from exercise or garden work.

I have catastrophic insurance and out-of-pocket with a plan for HSA to cover deductible work up to $5,000.

In the accupuncture intake, they asked for an emergency contact (I consider this the simple version of a death panel). Here is where my trust is in the gatekeeper function.

They work with M.D.'s and assorted other health people that they refer out to, and I would trust the ones they work with not to take out something to finance a trip somewhere. In fact, the medical profession as a whole could get more people earlier with this sort of gatekeeping because acupuncture believers are often very wary about traditional Western medicine (efficacy tested over 100 or so years rather than 1,000 or so).

If people like me can be lumped together, we would not require massive government intervention and expense.

If states required catastrophic plans or if states issued their own catastrophic plans for this subgroup, savings could be harvested to go after other savings, in particular among people on Medicare and Medicaid.

People on government-subsidized plans should be asked to change risky lifestyles in methodical ways. Taxpayers should not have to finance self-harm or medical practice designed to enable harmful lifestyles.

Obama could push back against some of the protesters by putting this sort of thing on the table. I wish he would. I might even start watching TV a little if he did that.

A prime issue in the discussion is where people put their trust. I don't want an M.D. as my gatekeeper, though I have one who is good at sewing if I need that, but he knows acupuncture himself and plays well with others.

It's the monopoly issue that is so frightening. To deal with it requires dealing with entrenched traditional interests to overcome the polarity of people shouting across a great divide.

Obama is smart enough to do this. I felt a ray of hope when he expressed frustration at softball questions at the town hall organized for him.

Everybody is going to have to give something up to get something done about this hairball of an issue.

If people want M.D. gatekeepers, that's fine with me, I just don't want to be in their plan.

Cracking open this market for new players could let everybody get on the bus they want to get on, as premium-payers, investors, and citizens. My bus sort of goes to China and India.

Until then, the market is too screwed up to mess with, for me anyway. Anybody see the iatrogenic statistics recently? It we let people assume their own risk by choosing their own team, at least they could go out their own ways, having assumed the risks they liked best.

Aug 13 10:41 AM

[CLH:]

The most importamt word for any business is competition. If we let the govt. take over our health care system, it will be no better then our schools. Monopoly destroys all businesses and the only monopoly is the govt.. monopoly.

Aug 13 03:05 PM

[John Lounsbury:]

Obama is missing the point when he talks about profits. Why should nearly 30% of health care expense be administrative? Lack of efficiency is the number one defect.

Aug 13 11:48 PM

[LorenzoG:]

The way I read this is: 3.3% profit, so if your insurance policy costs $10,000, the profit on that is $330. From another website they list the ceo pay of the top five ceos as $100 million per year, so that's another $10 added to your insurance policy. If you eliminated the insurance companies all together, your insurance would cost $9,660. Don't think the administrative costs will go down, they'll just have to hire the fired insurance company staff at the government office that manages your Public Option policy. So you want your entire life to be government information to save $340. Until someone will stand up to the AMA and say surgeons aren't worth $2,000-$10,000 per hour or an MRI isn't worth $2,500, costs won't really go down.

Sep 23 03:32 PM

[eddie too:]

you want comprehensive reform? here is a plan.

1. Insuring of pre-existing conditions is NOT the problem. Insurance companies should not have to immediately insure conditions that existed prior to the time a customer buys health insurance. Otherwise, people will not buy health insurance until they get sick. Insurance companies should be allowed to NOT insure pre-existing conditions IF the customer has not participated in a health insurance plan in 12 of the last 18 months (or some similar criteria). This exclusion from covering a pre-existing condition should not be allowed to be permanent. After a set period of time, even the pre-existing condition should become eligible for coverage. However, the choice should be the citizen’s.

2. A major problem with the current insurance system is that insurers charge some customers (particularly those with chronic illnesses like diabetes or heart disease) more than other customers for the identical insurance coverage. This allows insurers to reduce the risk of their health insurance policy portfolios with the consequence being that the most costly to insure are being thrust upon the taxpayers to insure. Since there seems to be a consensus that access to health care is a moral imperative, those (the insurers) who choose to compete in this field must not be allowed to price discriminate based on the health of the insured. If we are to have a comprehensive health insurance system, the economic risks should be spread evenly among those choosing to compete in providing coverage. This also eliminates a primary reason for government involvement in health care. This provision will tend to reduce the number of uninsured. It is important to realize that treating health insurance as a moral imperative removes it from the normal insurance paradigm (such as property and life insurance) relative to the establishment and coverage of health risks.

3. Health insurers should not be allowed to refuse insurance to anyone. The goal should be to allow the customer to shop for the coverage they seek at the best price they can find.

However, insurers should only be forced to cover pre-existing conditions if the customer has had health insurance from another insurer for at least 12 of the last 18 months. If the customer has not had coverage for 12 of the last 18 months, the insurer should be permitted to forgo coverage of a pre-existing condition for a pre-determined length of time.

This pre-existing condition stipulation is to ensure that customers do not try to take advantage of the system by waiting until they have a serious health problem before purchasing health insurance. This step will encourage everyone to purchase health insurance, but is not a mandate. In other words, citizens could still self-insure and accept the risk of being uninsured when they experience the need for medical care.

If citizens choose to self-insure, emergency room charges and other medical charges should be considered legal debts against those citizens and liens and garnishment of wages should be allowed to be used to pay the self-insured’s bills. Citizens with no income would have no excuse to not have health insurance if an adequate system of health insurance tax credits is implemented (see step 5 below). This will help to decrease the number of uninsured.

4. Group plans should be prohibited nationwide. This will solve the current problem of inequitable tax treatment of individuals who purchase their own insurance and individuals who have group insurance. It will also eliminate the cost of health insurance from businesses’ income statements. That will result in making businesses more profitable and consequently will increase federal tax revenues by the amount derived from applying businesses’ current tax rates to their current insurance expenses (roughly 25% times the value of all group plan tax deductions). In addition, prohibiting group plans will force insurance companies to compete more aggressively for customers; and will result in the marketing of multiple health insurance plans with many consumer options for coverage.

The concept of one size fits all is a proven failure in virtually all endeavors. Why should health insurance be any different?

5. Currently, the federal and state governments spend over one trillion dollars per year on health care for American citizens. Instead of funding these inefficient and ineffective government programs (that are already bankrupt), the one trillion dollars could be better spent by creating a system of health care tax credits and tax deductions.

For example, an estimated 15% (45 million) of the American public are at or below the poverty level. This means that an estimated 30 million households (if the average household in the U.S.A. is 1.5 persons or more) are at or below the poverty level. To provide all of these households a tax credit of $12,000 (the current approximate cost of family insurance plans) would cost approximately 360 billion (30 million times 12 thousand) dollars. This leaves 640 billion dollars (one trillion minus 360 million) available for assistance to individuals and families above the poverty level. This 360 million figure is an overly large estimate and would be reduced down by the number of households purchasing individual coverage rather than family coverage. The cost of individual health insurance is about one half that of family insurance.

Estimating that there are approximately 180 million households in the U.S.A., one half or 90 million households are at or below the median income level. Having already paid the total cost of health insurance for 30 million households below the median income level, there remain 60 million households below the median household income. These households could participate in a sliding scale (based on income) of declining tax credits and increasing tax deductions. This would cost approximately 414 billion dollars (60 million households times 6 thousand dollars in credits plus 60 million households times 6 thousand dollars times 15% (the approximate average marginal tax rate applied to the deductions)). This 414 million figure is (like the estimate in the preceding paragraph) also too large an estimate and would be reduced by the number of households purchasing individual coverage rather than family coverage. The cost of individual health insurance is about one half that of family insurance. Ignoring the savings attributable to the number of households paying for individual rather than family coverage) leaves 226 billion (the one trillion currently spent on Medicare and Medicaid minus the 774 billion cost calculated in this and the preceding paragraph) to fund deductions for those households making more than the median income.

Those households making more than the median income would receive tax deductions equal to the full cost of their health insurance premiums (with a ceiling if deemed necessary). This would reduce federal income tax revenues to the federal government. The estimated reduction would be approximately 270 billion dollars (90 million times 12,000 times 25%, the estimated average marginal tax rate applied to the 12,000 deduction). Again, this figure is actually lower because of some households paying for individual rather than family plans makes the tax deduction smaller.

This makes the total cost of providing either tax credits or tax deductions to every household in the U.S.A. approximately 1.044 trillion dollars. Figuring we are already spending one trillion for Medicare and Medicaid, this means for 44 billion dollars more than the federal government is currently spending on health care in the U.S.A. every household in American can purchase health insurance in a very competitive (if steps 1, 2, 3, and 4 above and steps 6, 7, 8, and 9 below are implemented) and private system. This competition will help to control future costs.

The 44 billion needed will be more than offset by the increased tax revenues from the increased profits of businesses that no longer have health care expenses (reducing their federal tax liability) on their income statements. In other words, the above system is not only revenue neutral for the federal government. It may well be revenue positive.

6. Allow insurance companies to compete across state lines. This will result in increased competition.

7. Require hospitals and doctors to publicize the number of times they have been sued for malpractice or negligence, the number of times the lawsuits have been settled in the doctors’ or hospitals’ favor, the number of times the law suits have been settled out of court and the number of times the doctors and hospitals have lost in court. This will result in increased competition and could result in improved quality of health care services.

8. Set a ceiling on punitive damages for malpractice and medical negligence law suits. This could result in reducing the cost of malpractice insurance and result in a corresponding reduction in overall health care costs.

9. Use the savings available from adopting step 5 above to fund grants and insured loans to entrepreneurs who want to invest in hospitals and clinics. This will reduce costs over time by increasing supply.

10. Use the savings available from adopting step 5 above to provide grants to medical schools and nursing schools that are willing to increase the number of first year medical and nursing students they enroll. This will also result in reduced costs over time by increasing supply.

11. Require insurance coverage for elective cosmetic surgery, abortion, artificial insemination, in vitro fertilization, sterilization and birth control to be added to health insurance plans as riders with separate costs from the basic plans. The costs of these riders would not be eligible for the income tax credits and deductions created by step 5 above. This would resolve all of the issues the proponents of Right-to-Life legislation have with the government’s involvement in health care. Government would no longer be spending taxpayers’ monies on these controversial health procedures.
Benefits to be derived from the above system are:
1) a net increase in federal tax revenues to the federal government;
2) increased competition to help control cost increases in our health care system;
3) enhanced freedom and choice for the American people;
4) universal health insurance coverage for Americans;
5) insurance is no longer tied to employment (more portable);
6) resolution of the financial problems of Medicare, Medicaid and other government health care programs;
7) reduced government involvement;
8) elimination of opposition from the Right-to-Life lobbies.
9) no mandates on citizens or employers; and,
10) less invasion of citizens’ privacy by the federal government.
Please consider supporting the above comprehensive plan with its modest changes to the current system or something similar before concluding more radical changes, that increase government involvement in our health care decisions or increase health care costs, are needed. From the above, you can see that it is possible to modify the current system to the benefit of all Americans without radical restructuring or increasing government expenditures. . Also, I realize that the above steps gore many of the special interests’ oxen. That is probably a sign that it is a good plan. It favors no one except the American taxpayer and it resolves many, if not all, of the issues being bandied about in our current discussion of reforming the health care system.
If support cannot be built for the above plan in the current U.S. Congress, publicize the plan to the American people. They will recognize that it is far superior to any other plan put forth or speculated about. The American people will take the Congress to task if they see the Congress bypassing a plan that will save taxpayer money and keep the government out of their personal health care decisions.
The greatest opposition will come from people who currently are receiving the tax benefits of untaxed health care costs through group plans. This $12,000 annual tax benefit to some Americans at the expense of others is typical Congressional crap and inherently unconstitutional. If someone does not have the guts to take on these unjust tax benefits, such as giving free, untaxed income to some Americans at the expense of other Americans, the great experiment started in 1776 has come to its end. Government of the people, by the people and for the people will have been replaced by government of special interests, by special interests and for special interests. GOD SAVE AMERICA!!!

Oct 19 12:01 PM

[junation:]

I'm surprised to still tort reform used as a reason for increased healthcare costs. That's been disproven by the CBO for at least three years now.

Nov 11 09:29 PM