Health insurer profits – really?
As you are probably aware, there is a very heated debate going on in our country over the need for health care reform. It was one of the main agendas that Barack Obama ran on and with Democrats controlling Congress, it seems a given that some sort of health care reform legislation is sure to reach the White House for his signature.
Part of the debate over health care reform has centered on who is really to blame for the high price of health care and insurance. I still believe some form of tort reform should be included, but am no longer convinced it should be the prime target of reform. So who should get the blame for the amount of money Americans spend on health care? According to a lot of folks, the next logical target would be the health insurance companies. You know, those diabolical folks who are making large amounts of money while you and I suffer because we either have no insurance or because it has such a high price tag and covers very little.
I will be the first to admit that I am no fan of insurance companies, no matter if they are insuring my automobile or my health. I have a distrust of them that I can’t really explain. That distrust may come from the perception I have of them; a perception of large profits realized at the expense of their customers. This has been mentioned before on Political Realities, especially in some of the comments. I want to quote one of those comments from Laurie, on this article, for a specific reason. I believe it shows the current train of thought, when it comes to insurance companies. It is incidentally, the opinion I have held also, although I may be rethinking my position.
I still hate the idea of government subsidies further enriching a for-profit, private industry that is healthy enough to pay out billions in bonuses every year.
Again, I want to echo Laurie’s comment. I find it hard to accept the idea that our government may provide subsidies to already healthy insurance companies. However, if we are not careful, we will begin to see these companies as the only villains in this debate. The Associated Press has a very interesting article about the insurance companies and if I may say so, it has opened my eyes and made me question my considerably harsh opinion of insurance companies.
THE CLAIMS
_”I’m very pleased that (Democratic leaders) will be talking, too, about the immoral profits being made by the insurance industry and how those profits have increased in the Bush years.” House Speaker Nancy Pelosi, D-Calif., who also welcomed the attention being drawn to insurers’”obscene profits.”
_”Keeping the status quo may be what the insurance industry wants their premiums have more than doubled in the last decade and their profits have skyrocketed.” Maryland Rep. Chris Van Hollen, member of the Democratic leadership.
_”Health insurance companies are willing to let the bodies pile up as long as their profits are safe.” A MoveOn.org ad.
THE NUMBERS
Health insurers posted a 2.2 percent profit margin last year, placing them 35th on the Fortune 500 list of top industries. As is typical, other health sectors did much better – drugs and medical products and services were both in the top 10.
The railroads brought in a 12.6 percent profit margin. Leading the list: network and other communications equipment, at 20.4 percent.
HealthSpring, the best performer in the health insurance industry, posted 5.4 percent. That’s a less profitable margin than was achieved by the makers of Tupperware, Clorox bleach and Molson and Coors beers.
The star among the health insurance companies did, however, nose out Jack in the Box restaurants, which only achieved a 4 percent margin.
UnitedHealth Group, reporting third quarter results last week, saw fortunes improve. It managed a 5 percent profit margin on an 8 percent growth in revenue.
Van Hollen is right that premiums have more than doubled in a decade, according to a Kaiser Family Foundation study that found a 131 percent increase.
But were the Bush years golden ones for health insurers?
Not judging by profit margins, profit growth or returns to shareholders. The industry’s overall profits grew only 8.8 percent from 2003 to 2008, and its margins year to year, from 2005 forward, never cracked 8 percent.
The latest annual profit margins of a selection of products, services and industries: Tupperware Brands, 7.5 percent; Yahoo, 5.9 percent; Hershey, 6.1 percent; Clorox, 8.7 percent; Molson Coors Brewing, 8.1 percent; construction and farm machinery, 5 percent; Yum Brands (think KFC, Pizza Hut, Taco Bell), 8.5 percent.
Sorry about the large amount of quoted material in this article, but I felt it was important to get the entire picture of the claims the article is addressing and the numbers it is using to do so.
Like or dislike health insurance companies, I have to question my own belief that they have been one of the largest culprits responsible for the current high price of health care and insurance. While I am certainly no accountant and not very good with numbers (those of you who are, feel free to chime in), the percentages in the above quote seem to be very small. The numbers may tell a different story, but to me it appears these companies may not be making as much money as I first believed.
So, if medical malpractice lawsuits can’t be blamed for the high cost of health insurance and health insurer profits have to be crossed off the list, who is left to shoulder the blame? This debate continues to grow and get more confusing. We have been hearing the arguments from the left and the arguments from the right, but it is becoming clear there is no specific party to blame for the current high price of health care and insurance. Just a thought, but if we could get past the “death panel” claims from Sarah Palin and the “high insurance profits at the expense of bodies” claims from the likes of Nancy Pelosi, then maybe we could figure out what the real problem is and try to fix it.
Larry, did you check on the salaries and bonuses the CEO’s of the major health insurance companies has been for the past 10 years?
In the health care mix we have consumers, providers, businesses that provide benefits for their employees and insurance companies. Get rid of the later, raise a progressive tax on all, doing away with insurance premiums, and the rest would do better. Medicare for all would end bankruptcy from catastrophic medical expenses, unburden business by taking them out of the business of providing these benefits to their workers, and end many of the headaches doctors offices have in filing claims.
Good for the people, good for business (except for the health insurance industry, sadly)……goood for our nation.
David,
Some of those salaries and bonuses are large, to be sure, but no larger than the salaries CEOs of companies in other industries were paid. I have to be honest, your suggestion that we get rid of private insurance companies bothers me. What gives the federal government or you and I to say they have no right to exist.
I wrote the article because I have questions as to their complete culpability in the problems we have with health care and the insurance thereof. I still think they have had a part to play, but they are not the only ones who have. Getting rid of them completely and providing Medicare for every citizen smacks of entirely too much interference by the federal government. I do not buy into the notion that a public option is the way to go.
“I have to be honest, your suggestion that we get rid of private insurance companies bothers me. What gives the federal government or you and I to say they have no right to exist.”
-Says Larry
Larry, nothing would stop insurance companies from existing. They’d still have every opportunity to sell additional insurance to those who’d choose to augment their medicare. Insurance companies are culpable to the extent that for decades they have been the only game in town. That we have a national problem of not only poor not being able to afford to purchase policies, but hard working people with insurance have lost it all due to the profit motive coming between a doctor and their patient.
No, i don’t say get rid of insurance companies, just break their strangle hold on the health care industry.
I was going off your earlier comment.
I assumed from that statement that you were in favor of getting rid of the insurance companies.
Larry, i guess we could mandate everyone buy private health insurance, (a windfall for insurance), or just do nothing…….
-All because of ideological views based upon fears of socialism. And needlessly, thousands of our citizens die due to lack of access to proper health care if this is the way we approach this problem.
In a world where medicare would be universal, there would still be a place for private insurance.
David,
I have no interest in mandating private health insurance policies for everyone. It is also not my desire that nothing be done with health care reform. I am not sure why you seem to think it is.
As for fears of socialism, I think that is a good fear to have. Our country was founded on completely different principles and for our country to move away from those principles and towards socialism would be a great loss of the things that help make our country so different and so great.
Larry, in your statement:
“……Our country was founded on completely different principles and for our country to move away from those principles and towards socialism would be a great loss of the things that help make our country so different and so great.”
That part of the Constitution that precludes “Socialism”…….. I don’t remember seeing the word “socialism” or “capitalism” in that document. Is it in the section of the Constitution where this nation is described as a “Christian Nation”?
Sigh…… So, do you believe we should move towards socialism, just because it isn’t mentioned in the Constitution? Are you so much against capitalism?
As for your statement about a “Christian nation”, I make no bones about me being a Christian. I am not ashamed of that fact. I do not wish to get into a discussion with you about it.
Larry,
I’m in favor of companies making a profit. It is surely a proper and effective motive for individuals to create workable economic system. But i am against unfettered capitalism where the profit motive trumps ALL other concerns.
If “socialism” is defined as any government regulation on free enterprise then i guess i am guilty as charged. Because a corporation has no allegiance to anything BUT the bottom line and their shareholders, it is easy to see how the profit motive can conflict with our national interest.
The nation’s ability to “promote the general Welfare” is sometimes encumbered by the demands of the shareholders. Hypothetically, if our national welfare would be best served by enhancing sustainable and alternative energy sources, one could see how this could adversely affect the oil industry. That is why the industry spends millions of dollars on congressional lobbyists to defeat public demands for such. Is it a government by “We the people” or “We the corporate interest”?
Again, there is nothing wrong with making a profit, my only question is:
“At what cost to the general Welfare are we willing to allow an enterprise to go to achieve the bottom line the investors demand”.
As for being a christian, there is nothing in the world wrong with that. Please continue to exercise that right. Worship is a freedom we can either enjoy or reject (….i choose to reject), however there is a growing misconception among many in this nation that this is a “christian nation”. My fear is that at some point, christian dominionists could impose their will and turn the U.S.A. into a Taliban-like “Christian Republic of America”.
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There is no need for apologize for quotes. Data is a friend.
I think that the rhetoric surrounding this issue interferes with real solutions. The left has wanted a single payer plan for decades, they now see this as a chance to set the stage for one. However, the insurance companies are not liked either, in many circumstances, for good reason. Personally, I am no fan.
No one doubts the need for reform. The question is how. I did a series on this over the summer. Like any complex problem, there needs to be a multifaceted solution. Here’s mine in a nutshell:
1. Tort reform: There are billions spent per year on defensive medicine. Also, a large percentage of malpractice suits are decided filed with no fault, and sometimes even no injury. Many suits are settled just to avoid the cost of litigation. Capping “pain and suffering” for real cases of malpractice will solve many problems. Harmed patients will be compensated and cared for, and the system will be spared the additional expense.
2. Competition: You can’t say that there is a free market system if it is not a free market. Let all insurance companies compete everywhere, and rates will come down. Period.
3. HSA’s: Health savings accounts should be offered to anyone who wants one. These drop premiums like a stone. This has the additional benefit of de-emphasizing the insurance companies, as most care will be paid for out of the account. Also, downwards pressure will be put on costs, as when people are spending their own money, they will question the needs for tests, treatments, medications, and the like. If you have a service or medication that you want people to use, you might decrease the cost. It also takes all other entities out of the Dr./Patient relationship. No interference, no authorizations, just the Dr. and patient making decisions together. If you want to make the insurance aspect of the plan cover everything…fine. The insurance will only be used for catastrophic injury or illness, so the premiums will still go down.
4. How about, for once, REALLY trying to eliminate fraud from medicate and medicaid? This is to the tune of hundreds of billions per year. They’ve had 40 years to get this done, but have failed miserably at every turn (if they’ve really ever tried).
So, there are many ways to decrease insurance premiums, expand access, and NOT involve the government. Let the people and their doctors decide.
Matt, i agree with eliminating fraud from medicate and medicaid. 60 minutes did a segment on that issue tonite.
http://www.cbs.com/primetime/60_minutes/video/?cid=60%20Minutes/60%20Minutes%20Full%20Episodes&pid=GQIzNJWFeZA3_UdBSl8JcB58XdIud78c&category=recent&play=true
Tort reform? Great until a doctor botches your surgery.
David, Tort reform doesn’t mean that you can’t sue, nor does it mean that truly injured people will be denied compensation for their injuries. It does mean that there will be a cap on “pain and suffering,” which usually goes far beyond what it will take to care for an injured patient. It’s a huge cost.
“…….nor does it mean that truly injured people will be denied compensation for their injuries.”
Tort reform may claim to allow injured people with limited means a legal recourse, but if there is no money in it for the lawyer, the suit won’t go to court, will it?
David, is that also not a good argument to why insurance companies would do a better job of keeping costs down? The lawyer wants to get paid, so he or she presses the suit forward. The insurance company wants profit, so they try to keep costs down.
Also, given the high fees collected by the lawyers, show we not pay attention to that? I’m sure that their margin is an order of magnitude higher that the insurance industry’s!
Also, how much does the injured person have left after the legal fees?
I just don’t know anyone who likes insurance companies unless its someone who works for them. The way to keep cost down is to allow more competition and enable companies to cross state line. There are many reforms that can be instituted to help, but no thats not what those in government want to do. They see an opening and a chance not just to destroy insurance companies, but to drive another nail in capitalism which is the real enemy to many on the left. Sady these people think and honestly believe the government can do it better.
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I think that Matt and Ron hit on a good starting point– competition. The politicians use this argument in support of the public option so why not allow insurance companies to compete across state lines? WOuldn’t even more competition be better?
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It’s funny, and indicative of the ongoing health care reform debate, but as I read each comment I kept thinking to myself “good point.” You’re all largely right in what you argue but some of the main points are inherently in conflict. Choices need to be made that will preclude other choices that also make sense. Everyone here seems to agree we need to do SOMETHING and in the end the decision will not please everyone. It also won’t be the final decision because further changes will be inevitable.
Several of you strongly support interstate competition and, as a free market advocate, I want to jump on that bandwagon too; but I’m baffled as to how that can work in practice. My doctor has enough trouble handling the paperwork from the half dozen insurers he currently accepts. What’s he supposed to do when his patients start calling to ask him to take 50, 100, or 500 other insurers? Please someone tell me how that will work or point me toward a document explaining it because I don’t see it until there is a HUGE improvement in electronic medical records and a standardization of insurance documentation.
Saying nobody likes insurance companies is like saying nobody likes lawyers, or airlines, or Congress — true, right up until the time you need them or, in the case of Congress, when it’s your own congressman or senator — then they’re terrific. There’s nothing wrong with insurance companies. They are in the business of making money and, as Larry pointed out, they are not making gobs of it from the health care industry. That is why, as I’ve said many times before, we need to move the debate away from refroming the method of paying for health care to managing the cost of health care. Tort reform strikes me as a band aid where we need major surgery — okay, let’s look at that but it’s far from the solution. The most interesting thing I’ve read is a change in medical incentives — payment for results instead of payment for procedures. But the really big stuff comes from the tough ethical decisions about killing off granny — do we spend $50,000, $100,000, $250,000 for medical procedures that on average extend life by 3-4 weeks or 3-4 months? The last two years of life are the bulk of expenses — what do we do about it while at the same time doctors. pharmaceutical companies, and research institutions create more expensive new procedures and new medicines to extend average life even more? These decisions and even the questions are above my pay grade; but they are the elephant in the room and everyone, especially politicains, is terrified to go near them.
Good post, great discussion. Thanks, Larry, for posting a quote from me in earlier discussions. But I continue to be haunted by something David Walters said in one of those threads. I don’t have the exact quote, so I’ll botch it a bit but the sentiment is what I’m after:
“What value is it to continue to insert a for-profit industry between a doctor and a patient?”
I might add “And whom does it serve?”
9 out of the 10 largest health insurers in the US are public corporations, and as such have a primary fiduciary responsibility to their shareholder groups to continue to post higher profits and provide bigger dividends, quarter by quarter, year to year. So what makes us think that these companies- that control a majority of the health insurance market- will ever participate in any meaningful cost reductions? Let’s just say we find the “magic bullet” that will bring costs down significantly for providers (and I don’t think we have). Does that also guarantee that insurance costs will go down, or does that just provide the public, for-profits the ammunition to show higher profits and post stock price growth to its investors? With no healthy, outside competitor that provides policies at an adjusted, lower price, what would be these corporations’ incentive to lower rates?
This was the biggest value in the public option, and I think it was very short-sighted to let this one go.
The value of inserting insurance companies between doctors and patients is the allocation of risk to third parties established for that purpose. I’m not convinced insurance companies are anywhere near the villains they are often portrayed as and, as far as malpractice premiums, we have seen a dramatic reduction in premiums in those states where tort reform has passed, so why is it unreasonable to think other savings will not follow under health care reform? There is actually quite considerable competition in the insurance industry even in those states where just a few companies dominate. Size is not necessarily evil. Walmart puts age old family businesses out of business wherever it goes but in the end, as consumers, we get excellent value from Walmart — though I wouldn’t want to work there. There’s good news and there’s bad news. Same with insurance companies. We’re a capitalist society. I’m not interested in seeing the government eliminate an entire industry based on a hunch that it will lead to lower insurance prices — the social cost is too high and the rewards are dubious.
Mike,
I was surprised by this statement: “I’m not interested in seeing the government eliminate an entire industry based on a hunch that it will lead to lower insurance prices…”. Not only is that not what I;ve said, it has been tireless refuted by Obama as NOT the goal for a public option.
I would be very interested to see any links that you have that credible statistics to suggest that there is “quite considerable competion in states that have only one or two major carriers”. Has this competition resulted in affordable policies, or fewer people being turned away because they once had to use those policies? These are things that a public option may be able to do. Shouldn’t we at least look at it, as long as those lucky enough to have insurance can keep it?
As far as Walmart…Sure, it’s a great place to buy cheap shorts, but I’m afraid that I see no correlative value between health insurance reform and a company that has raced to the bottom in both price and quality and regularly kills off the small business around it. Maybe I missed something in the posts…
Laurie, when you said you didn’t see the value of putting a for-profit industry between the patient and the consumer and asked what value it served I took that to mean you wished to see a public option replace the health insurance industry. Sorry if I took that the wrong way.
Just to be clear on my view — I support a public option in some very limited fashion as a stop-gap measure to provide insurance to those unable to afford it or not qualified to buy it due to pre-existing conditions. In fact, Connectocut and many other states already have such a system in place though I don’t know the details or how far it goes. I think Olympia Snowe has it right with a trigger mechanism. But there are lots of questions about how to make it affordable and one of the bigger problems is the long and growing list of state mandates. If a public option can bypass state mandates by providing bare bones insurance at affordable prices then I think that will force states to reconsider their laundry list of coverages. That is a mixed blessing for people with “fringe” medical issues that some states cover and others don’t. I wouldn’t want to be on the short side of that problem; but these are the hard decisions. It will not be pretty for some families.
Mike, thanks for articulating the question about interstate competition. I, too, am waiting for much more explanation of why this would provide cost savings to the consumer. My friends who are doctors all agree: If they have to contend with every insurer everywhere, their costs definitely go up.
An interesting aside: At the beginning of 2009, many financial experts and websites list their “top ten”lists. Which industries stand to be the biggest winners and losers in the market this year and in the near future. I no longer have the links, but there was once industry nearly everybody had on their list of big winners: Electronic medical records storage software- developers and sellers.
I am not sure if there is anything to add to your comment, Mike. I suspect you should have written this article, instead of me. You are so right when you say the politicians and everyone else is afraid to go near some of the questions and the decisions that need to be made concerning health care reform. It seems no one wants to make the hard choices and I am not sure if I would be capable of doing it myself.
One thing you mentioned that I want to address is the payment for results instead of payment for procedures comment. That would be an interesting thing to see. For the most part, that is how it is in my industry, automotive repair. If our shop charges to fix a problem, such as a leaking radiator hose and the vehicle comes back to our shop in a few days with the same leak, guess what happens? We get to fix it again at no charge. In fact, the first thing that usually comes out of the customer’s mouth is “this isn’t going to cost me anything, is it?”. I wonder how doctors would react if patients started questioning them like that?
Obviously, the automotive repair industry is vastly different than the health care industry, and there are certainly times when procedures have to be performed and paid for that do not necessarily “fix” the problem. I believe there could be a lesson to be learned here.
I’m not sure if the mandating part of the bill will be ruled constitutional. I know one must have auto insurance, but you are not forced to drive on the other hand if you are breathing you must have health insurance. This bill should it pass will be challenged and the outcome is far from certain.
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