US Health insurance companies not making obscene profits?

[Themightytom]

http://www.msnbc.msn.com/id/33470129/ns ... rm/from/ET

WASHINGTON - Quick quiz: What do these enterprises have in common? Farm and construction machinery, Tupperware, the railroads, Hershey sweets, Yum food brands and Yahoo? Answer: They're all more profitable than the health insurance industry.

In the health care debate, Democrats and their allies have gone after insurance companies as rapacious profiteers making "immoral" and "obscene" returns while "the bodies pile up."

Ledgers tell a different reality. Health insurance profit margins typically run about 6 percent, give or take a point or two. That's anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.



Profits barely exceeded 2 percent of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans.

Insurers are an expedient target for leaders who want a government-run plan in the marketplace. Such a public option would force private insurers to trim profits and restrain premiums to compete, the argument goes. This would "keep insurance companies honest," says President Barack Obama.

The debate is loaded with intimations that insurers are less than straight, when they are not flatly accused of malfeasance.

They may not have helped their case by commissioning a report that looked primarily at the elements of health care legislation that might drive consumer costs up while ignoring elements aimed at bringing costs down. Few in the debate seem interested in a true balance sheet.

But in pillorying insurers over profits, the critics are on shaky ground. A look at some claims, and the numbers:

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.

Other health sectors doing well
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.

[B5B7]

A couple of quick points - the list chosen for comparison is very selective, and there are ways to minimise apparent profits, especially for those industries that are basically part of the financial sector where manipulation of money is a prime part of the business.
The industries chosen for comparison are manufacturing or straightforward service industries with a physical product, not money as the product.

[Stargate Nerd]

Is this a joke? Where are the real numbers? Trying to hide something by using percentages?

If a Health Insurance Company has revenues of $20 billion and a profit ratio of 6%, that's still $1.2 billion that could have gone towards saving the lives of people, who were denied coverage.

[Darth Wong]

Gee, if these companies are hurting so badly for cash, it's strange that Cigna's CEO got paid $120 million over the last 5 years.

Since the insurance companies charge enough money to generate 3x the overhead of the Canadian health care system, all of this money must be either profit or inefficiency. If it's not profit, then it must be inefficiency, ie- waste.

[aerius]

I pulled about a dozen quarterly reports on US healthcare companies at random from Google Finance, administrative costs are at a bit under 10% of total expenditures on the low end and one company had costs that took up 20% of their budget. I'd say that's a lot of useless paper shuffling going on.

[AdmiralKanos]

I pulled about a dozen quarterly reports on US healthcare companies at random from Google Finance, administrative costs are at a bit under 10% of total expenditures on the low end and one company had costs that took up 20% of their budget. I'd say that's a lot of useless paper shuffling going on.

Or very well-paid paper shufflers.