President Barack Obama has complained that health insurance companies are making record profits “at a time when everybody else is getting hammered.”
A Web video by Moveon.org, one of the advocacy groups pushing for health care legislation, portrays insurers as circling sharks who “kill people each year by denying coverage while profiting billions.”
Health insurers are increasingly vilified in the health care debate. But is there any truth to the hyperbole?
That depends on how you slice the numbers.
Health Care for America Now, a coalition of unions and other organizations, points to the combined $12.9 billion in profits for 10 of the largest publicly traded health insurance companies in 2007. That’s a 428 percent increase from what the companies made in 2000.
But the 2000-2007 time period covers a time of widespread consolidation in the industry. If companies got larger by buying other insurers, their income increased. That was the case with WellPoint Inc., which operates Blue Cross and Blue Shield plans in 14 states and is the nation’s largest insurer. Company profits increased from $226 million in 2000 to $3.3 billion in 2007, a period that covers Wellpoint’s merger with Anthem and its acquisition of other companies.
That’s part of the point, according to Health Care for America Now, which advocates a government-run plan that would compete against private insurers. Because of industry consolidation, the group says, there’s not enough competition in the health insurance market to keep premiums and profits down.
Unfair Advantages
Insurance industry officials say a public plan would have unfair advantages and drive them out of business, and they say their profits aren’t the reason health care is expensive. Insurers’ profits represent 1 cent of every dollar the nation spends on health care and 3 cents of every dollar spent on health insurance premiums, according to America’s Health Insurance Plans, which represents health insurers.
Health insurers, in fact, ranked below many other industries in profitability, including other health sectors, according to the latest Fortune magazine rankings. While pharmaceutical companies were the third-most profitable industry last year, with a 19.3 percent profit margin, health insurers ranked 35th, with a 2.2 percent profit margin. Health insurers also ranked lower in profitability than medical products and equipment makers, pharmacies and medical facilities.
Karen Ignagni, president of America’s Health Insurance Plans, has said insurers support a proposal that they disclose what portion of premiums are spent reimbursing providers for care rather than on administration, marketing and profits. And she says other health sectors should do the same.
“That would … certainly put the erroneous claims about health plan profits in perspective,” Ignagni said.
The health insurance bill approved by a Senate committee would require reporting how premiums are spent. The House would require insurers to rebate some premium money to customers if the percentage of revenue spent on care falls below a certain level.
One particularly biting criticism is that insurers make big profits by denying care. That’s based on the industry practice of denying coverage for pre-existing conditions and on what some lawmakers have called the “vicious” practice of retroactively canceling coverage after customers start submitting claims.
Insurance companies say they’re just trying to prevent people from buying insurance only after they’ve gotten sick.
Industry executives told a congressional panel in June said the issue would go away completely if Congress required most people to have insurance, so costs and risks would be shared.
If that happens, the industry has said it would not deny coverage for pre-existing conditions and would not base premiums on a person’s health status or gender. Insurers would save money by not having to screen applicants and would get a larger pool to share costs and risks.
If the government required most people to have insurance and subsidized coverage for those who couldn’t afford it, insurers could gain tens of millions of new customers.
That would come at a good time. Profits for 10 of the largest publicly traded companies were down last year, and this year’s numbers are continuing that trend.
WellPoint’s enrollment, for example, fell by 1.1 million people from June 2008 to June 2009, a drop the company attributes primarily to rising unemployment.
But that doesn’t mean health care reform advocates won’t keep targeting the industry.
“Right now,” Obama said last week, “we have a health care system that too often works better for the insurance industry than it does for the American people.”
Reader response:
“Many thanks. I’ve been interested in these numbers but hadn’t taken the time to pursue them. Great, understandable facts that I haven’t heard advanced in TV discussions etc.
Thanks again!!!!!!!!!!!!!!!!!!!” — Jack Olson
“Not only are the insurance companies (and related industries) too profitable but their executives make too much money!!! We pay higher premiums, deductibles, co-pays as their salaries and benefits increase. There is just too much greed (and power hungry people) in the world and it is killing us. Success is not measured by a paycheck! Just how do these people sleep at night knowing that there are so many children, adults, and animals that are hungry/sick/endangered on earth in addition to man-made global warming!” — Sallie Bates, Field Safety Corp.
