Health Insurer Profits Not So Fat

[bonnie]

APlogo0409

It would appear that the Associated Press has nominated Calvin Woodward to be their go-to guy for "Fact Check" pieces that blow up political arguments and assertions by the White House and partisan Democrats.

In late April (covered at NewsBusters; at BizzyBlog), Woodward, in an item headlined "Obama disowns deficit he helped shape," blistered Barack Obama and his administration for its attempt to pin the blame for this exploding federal deficits and national debt on his predecessor. This of course didn't prevent the administration from continuing to blame Bush 43 for most of this past fiscal year's deficit of $1.417 trillion; it also didn't prevent Woodward's AP colleagues from mostly parroting a White House claim he had long since debunked.

In today's Fact Check ("Health insurer profits not so fat"), the AP writer ripped into what has seemingly been a mandatory talking point any time a Democrat brings up health care: the supposedly excessive profits of health insurance providers.

Woodward found that the Democrats' claim doesn't survive even cursory scrutiny:

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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.

.... 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.

.... 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.

Woodward, along with many others in the blogosphere commenting on his work, misses one important point, namely that what matters to investors isn't profit margin itself as much as return on invested capital. Grocery chains, for example, typically earn very small margins. As seen in these financials from the past four years, The Kroger Company, usually seen as well-managed, has had a profit margin (net income divided by revenues) of well under 2%.

Nevertheless, Woodward's point that taking every penny of profit out of the health insurance industry would do little to lower premiums stands, while Democrats continue to cynically exploit public ignorance about the size of profit margins achieved at companies in general and in the insurance industry in particular.

The next line of leftist argument is that the government would somehow achieve lower savings by trimming administrative costs in comparison to levels seen in the private sector. The experience with Medicare refutes that argument. The Heritage Foundation's Robert Book showed back in late June (HT Patterico) that Medicare’s administrative costs per beneficiary is actually higher, despite myriad obvious advantages (much larger patient pool, not having to pay income and other taxes, etc.) than that of private insurers. The feisty Book deliciously ripped into New York Times columnist Paul Krugman when the New York Times columnist launched a substance-free attack on his work.

Another claim of statist health care fans is that the government won't heartlessly reject claims like insurance companies do. Oops: As noted in early October (at NewsBusters; at BizzyBlog), the American Medical Association found that that Medicare's claim denial rate is higher than that of any other private insurer, and almost 70% higher overall than the private insurers' average denial rate.

There's one other problem with Woodward's Fact Check, expressed succinctly by Hot Air's Ed Morrissey. It's a big one, though not quite as big as it would have been before the Internet came along: "The AP finally got around to it today … on a Sunday, where it’s likely to be buried."

It only stays buried if news consumers who care allow it to happen.

[Bravus]

I do take the general points of the article, and don't take a lot of issue with them, although they're spun pretty hard.

But 'profit' is defined as income minus costs. Costs include salaries, perks and bonuses... Insurance could be extortionate but still show a low profit by having very high costs on those items. Not necessarily saying it *does*, but it *could*.

[bonnie]

The next line of leftist argument is that the government would somehow achieve lower savings by trimming administrative costs in comparison to levels seen in the private sector. The experience with Medicare refutes that argument. The Heritage Foundation's Robert Book showed back in late June (HT Patterico) that Medicare’s administrative costs per beneficiary is actually higher, despite myriad obvious advantages (much larger patient pool, not having to pay income and other taxes, etc.) than that of private insurers. The feisty Book deliciously ripped into New York Times columnist Paul Krugman when the New York Times columnist launched a substance-free attack on his work.

Another claim of statist health care fans is that the government won't heartlessly reject claims like insurance companies do. Oops: As noted in early October (at NewsBusters; at BizzyBlog), the American Medical Association found that that Medicare's claim denial rate is higher than that of any other private insurer, and almost 70% higher overall than the private insurers' average denial rate.

Never have we been denied a Dr ordered test or medication from the "evil insurance company"

Hate to tell you how often it has happened lately with medicare and prescription D from the "compassionate government" that wants to control everyone's medical care.

[bonnie]

I do take the general points of the article, and don't take a lot of issue with them, although they're spun pretty hard.

But 'profit' is defined as income minus costs. Costs include salaries, perks and bonuses... Insurance could be extortionate but still show a low profit by having very high costs on those items. Not necessarily saying it *does*, but it *could*.

Look it up.

[Bravus]

Not interested enough. I'm happy with my socialised+affordable private situation in Australia. I care about my American friends and about the 1 in 10 Americans without insurance, but in the final analysis it's an American decision that will be made without me, so I'm not going to put the limited time I have this week into doing homework on it.

[bonnie]

Not interested enough. I'm happy with my socialised+affordable private situation in Australia. I care about my American friends and about the 1 in 10 Americans without insurance, but in the final analysis it's an American decision that will be made without me, so I'm not going to put the limited time I have this week into doing homework on it.

That 1 in 10 will be without insurance for the next 3-4 years. They will pay a hefty increase in taxes immediately tho. Those without insurance still receive care.

Just as his latest tear jerker.She only happens to be receiving care without insurance in one of the finest cancer centers. On Obama's plan she would wait 3-4 years. Probably wouldn't have to worry about her then

We have never been turned down for care when we didn't have insurance. Two sons has surgery that was not cheap during that time. We made very reasonable payments.

When we were privately insured we had never been turned down for tests or meds.

Now sometimes for even common drugs we have to dance thru hoops before we can get permission.

[Dr. Shane]

I care about my American friends and about the 1 in 10 Americans without insurance...

Thanks for your thoughts but it is closer to 1.5 in 10 Americans and ever growing. With the economy not recovering more and more people are losing health care insurance.

[Neil D]

Quote:

Look it up.

Well, I looked at Salerys of CEO of Insurance industrys...

The weakest of the group makes over $3 million...Of course there was this class action lawsuit , but still, $3 million is nothing to sneeze at. And then theres the 2nd in command, who must be paid at a million less....You can't have the boss be paid less than the employees....

Source

[bonnie]

Quote:

Look it up.

Well, I looked at Salerys of CEO of Insurance industrys...

The weakest of the group makes over $3 million...Of course there was this class action lawsuit , but still, $3 million is nothing to sneeze at. And then theres the 2nd in command, who must be paid at a million less....You can't have the boss be paid less than the employees....

Source

What should they be paid for the responsibility they carry?

[karl]

Woodward's point that taking every penny of profit out of the health insurance industry would do little to lower premiums stands, while Democrats continue to cynically exploit public ignorance about the size of profit margins achieved at companies in general and in the insurance industry in particular.

The next line of leftist argument is that the government would somehow achieve lower savings by trimming administrative costs in comparison to levels seen in the private sector. The experience with Medicare refutes that argument. The Heritage Foundation's Robert Book showed back in late June (HT Patterico) that Medicare’s administrative costs per beneficiary is actually higher, despite myriad obvious advantages (much larger patient pool, not having to pay income and other taxes, etc.) than that of private insurers.

Another claim of statist health care fans is that the government won't heartlessly reject claims like insurance companies do.... The American Medical Association found that that Medicare's claim denial rate is higher than that of any other private insurer, and almost 70% higher overall than the private insurers' average denial rate.

It seems to be extremely difficult to enlighten libs with facts, Bonnie. Just basic arithmetic should tell people that they can't get more for less. Especially if they are injecting government into the mix. When was the last time government was efficient at anything?

It seems to me they are in love with the idea of a parental, care-taking government and the perceived freedom from personal responsibility it suggests.

[karl]

Medicare’s administrative costs per beneficiary is actually higher, despite myriad obvious advantages (much larger patient pool, not having to pay income and other taxes, etc.) than that of private insurers.

Medicare's claim denial rate is higher than that of any other private insurer, and almost 70% higher overall than the private insurers' average denial rate.

[Jeannieb43]

Medicare's claim denial rate is higher than that of any other private insurer, and almost 70% higher overall than the private insurers' average denial rate.

Please cite your authority. I find this statement to be patently false.

[bonnie]

Originally Posted By: karl

Medicare's claim denial rate is higher than that of any other private insurer, and almost 70% higher overall than the private insurers' average denial rate.

Please cite your authority. I find this statement to be patently false.

Midland County Public Policy Examiner

Medicare denies more claims than private insurance

October 8, 2:35 PMMidland County Public Policy ExaminerJarrett Skorup

Are company heads more evil than politicians?

The main selling-point for Democrats about overhauling health care is to paint insurance companies evil, callous, cold or just plain greedy. The assumption being that government bureaucrats are more likely to care for you when profit is not a motive. I've discussed this fallacy in the past.

So what happens when it is shown that Medicare denies far more patients than private insurance?

The 2008 Health Insurance Report Card (PDF) released by the American Medical Association has this graph:

Metric 12—Percentages of claim lines (i.e., records) denied Description: What percentage of records submitted are denied by the payer for reasons other than a claim edit? A denial is defined as: allowed amount equal to the billed charge and the payment equals $0. Source: NHXS

Payer

Count of records

Denied records

Percent of

claim lines

denied

Date range

Aetna

637,239

43,317

6.80%

03/01/2007 – 3/10/2008

Anthem

250,070

11,546

4.62%

03/01/2007 – 3/10/2008

CIGNA

263,728

9,060

3.44%

03/01/2007 – 3/10/2008

Coventry

20,487

590

2.88%

03/01/2007 – 3/10/2008

Health Net

4,975

193

3.88%

03/01/2007 – 3/10/2008

Humana

143,026

4,142

2.90%

03/01/2007 – 3/10/2008

Medicare

6,938,431

475,566

6.85%

03/01/2007 – 3/10/2008

UHC

1,127,691

30,177

2.68%

03/01/2007 –

This is interesting, to say the least.

[karl]

Bonnie, you might want to edit the tail of that last post on this thread.