FACT CHECK: Health insurer profits not so fat

[melm00se]

Source: AP

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.

Read more: http://news.yahoo.com/s/ap/20091025/ap_on_go_co/us_fact_check_health_insurance

---

This was in the local paper this morning (as well as Yahoo). Spin? accurate? something else?

[fasttense]

1. Their profits may be anemic but the money some of their executives rake in

is equal to what Wall Street pays itself.

[yourout]

2. Yes......cause they are bloated with obscene Corporate payrolls...

The amount of money that is being payed to the Execs at most of these company's is beyond ridiculous.

[Fiendish Thingy]

14. Sounds like the AP is excluding payroll from "profits" n/t

[crim son]

3. It's also important to consider actual dollar amounts and not merely

percentages. I'd be interested to learn what six percent per annum adds up to, for the insurance industry.

[Gormy Cuss]

50. Exactly. Even with a relatively low profit margin the profits are enormous.

The health insurance industry runs on volume to generate profit.
It's also important to keep in mind that large companies are expert at defining costs to eat up revenue before declaring profits.

[rucky]

4. This is such bullshit - and needs to be addressed immediately!

The hits on Google news show it originated from CNS.com, which ties it to ACORN "lies". Even if the fact is correct, it's only a small part of the point PO proponents have been making.

The REAL question - as I've seen it presented - is how much of your premium dollar goes to actual health care? The answer is 60% for private insurers. For Medicare, it's 96%. The 36% gap is due to profits, salaries, bonuses, marketing, lobbyists, supporting entire departments dedicated to find ways out of paying claims, more bureaucracy, attorneys, that private insurers pay out to secure their profits.

[Barack_America]

10. Remember the days when AP articles used to be well-researched and unbiased?

Those were good days.

Now the AP reads like a wing of the Heritage Foundation.

[sketchy]

21. I got so infuriated one day

by one of their many skewed "FACT CHECK" pieces, that I sent them an email titled "FACT CHECK: AP news organization or propagandist for the right?"

I never got a reply of any sort.

[TreasonousBastard]

27. Would you mind backing up that 60% figure...

because it's been bandied about for years now, but nobody has shown where it's from.

You might also break out the figures for how Medicare accounts for things like rent that it shares with other agencies, and how government accounting doesn't bother with little things like capital costs.

[66 dmhlt]

47. Here's a source for 70% health insurance v. 97% Medicare

Our bloated private health insurance system squanders 30 cents of every premium dollar before any medical care is delivered. Medicare, a government insurance program, has three percent overhead costs. 97 cents of every Medicare premium dollar goes to patient care.

http://www.consumercal.org/article.php?id=802

And I'm calling "Bull Shit" on AP article's mendacious claim that

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....
Emphasis added

From the Fortune 500 source that the AP article cites for 2008

Most Profitable Top Industries: Return on Assets
Health Care Insurance topped all other insurances on Fortune 500's list
http://money.cnn.com/magazines/fortune/fortune500/2009/performers/industries/profits/assets.html

Most Profitable Top Industries: Return on Shareholders' Equity
Health Care Insurance topped all other insurances on Fortune 500's list
http://money.cnn.com/magazines/fortune/fortune500/2009/performers/industries/profits/equity.html

[TreasonousBastard]

49. That's just a statement with nothing backing it up, just like...

AP's statement with nothing backing it up.

Why do you believe one and call the other bullshit?

I would tend to believe AP before a presumably biased "source" such as this consumer federation, but neither of them mention just where they get their numbers from. At least AP claims to get it from insurance sources.

Personally, I tend to think the 70% total overhead figure is pretty close, since that was close to the numbers I worked with in another area of insurance. And a 6% underwriting profit, as th AP says, isn't out of line. Underwriting profits often come in much lower than that in some lines.

I still haven't found a good source for the 3% overhead for Medicare, though. I suspect a lot of costs are ignored somewhere to get down to that. Government accounting does a lot of things that would be illegal for a private firm, like cost shifting into the next year. It may also not properly account for reserves, like all insurance companies are required to do.

[rucky]

48. Here's the CBO rundown of spending:

http://www.cbo.gov/ftpdocs/99xx/doc9924/Chapter3.7.1.shtml#1104303

[TreasonousBastard]

51. Did you actually read that thing? I haven't digested it all yet, but...

I did see where the larger plans have very low administrative costs, down as low as 7%. This is for a large account and can't be scaled to an insurance company's overall business plan, but it's pretty low.

A few other weird things in there, like the assumption that those who aren't using health care while uninsured will continue to not seek it if they are. Howzat?

But, it's more reading than I have time for right now.

[rucky]

53. Scanned it. Look at Table 3-1

20 Billion of 90B total costs spent on Sales & Marketing for Private Plans!

[rucky]

57. And 21 of 90B for after-tax profits.

Way more than the 3% that's being reported!

[jaxx]

5. I don't think they count the 'denial' money saved as income.

Those who deny many get big bonuses. Those denied become stats.

Piss on the ins co's.

[mbperrin]

6. Spin. Cannot tell which revenues we're talking about. Net after sales expense?

Gross revenues before sales expense? Gross after sales expense? Net before or after dividend distribution?

The other thing we're missing here are the DOLLAR totals. Per cents look neat, but here's a fact: my daughter bought a watch at a garage sale for 25 cents and sold it on eBay for $2. That means she has a 700% profit margin markup! Wow. But, it's really $1.75.

Need to see the BILLIONS here. As well, the other companies mentioned make real stuff - chocolates, food, and so forth. These guys make money raking it off the top with paper. They produce nothing.

Harder work should earn more, should it not? Why these bastards haven't received the Mussolini treatment yet is a tribute to the patience of the American public.

[izquierdista]

7. Spinning like a top

The big difference is salaries. There's $200 million or so for the CEO which, if he was paid only 40 times the average worker, would be more like $1.2 million. Then there is the salary for people whose job it is to deny claims. They may make more money for the company than they cost in salary, but they are there to ensure that health care is NOT paid for. If an employee of Tupperware, Hershey, or KFC took your money and didn't give you a product, you could have them arrested.

[Phoebe Loosinhouse]

8. The fallacy in this stupid article

which I read this morning, is that healthcare is not an optional commodity! Every single person needs healthcare at some point or another. It's the VOLUME of the profit - not the percentage of the profit! Not too mention that much of the profit is siphoned off by the wretched excess of the execs at the top BEFORE you even get to something called "profit". Does anyone think the head of Tupperware got over 1 BILLION in a single year as compensation as one CEO of ONE insurance company got in 2005?

What if someone found a way to charge you for the oxygen in the atmosphere we breathe? But gee, they only made 3% profit on all the breaths drawn by all the humans on the planet? Did anyone realize that Hershy makes a greater percentage profit than that?

This will be the new talking point for the Limbaughs and the Hannitys and it's so easy to blow apart that we should all take delight if they even try to make this a new mantra. It takes idiocy to a new level. This article must have been written by some new 15 year old Republican neo-genius.

[HereSince1628]

22. The magnitude of the money is also why fraud and abuse inside the system

is tolerated. If the CEO's felt a demand to end the fraud and abuse to earn more money, the fraud and abuse would soon end.

As it is, the CEO's tolerate and some participate in the fraud and abuse.

[Barack_America]

9. What counts as profit?

Do they first subtract the costs of running their ridiculously inefficient and cruel bureaucracies? I'll bet they do.

And what of their executive salaries? Are these deducted too?

What is this "profit"? What the company rakes in with premiums over what they spend out? Or what the shareholders see after their inflated costs of operation are subtracted out?

Point being that health insurance bureaucracies are still sucking valuable money away from health care, money that a public option may allow to go back into the system.

[aintitfunny]

11. 6% of what? Pure Propaganda courtesy of AP (n/t)

[Ineeda]

12. let's compare apples to apples, not apples to orangutans. n/t

[GoddessOfGuinness]

13. Does Tupperware take its products back from folks with pre-existing conditions?

I don't think so.

If private insurance companies can't operate at a profit without denying coverage to people who need it, it's a clear sign that the government needs to step in and manage healthcare for everybody.

[dflprincess]

64. No, but Pampered Chef has heard I'm the anti-Martha Stewart

and has put me on their list of "too inept to sell our products to" list. (I don't know why, I'm a disaster in the kitchen but I can go nuts at a Pampered Chef party).

Enough joking. How dumb are the people who came up with comparing Tupperware to health insurance profits?

[Thornleylv]

15. Big difference

If they won't sell me a hershey bar I won't die because of it! Just a small difference!

:kick:

[TomClash]

16. They all should be more profitable

They all provide something far more useful than the "service" the health insurance industry provides.

[Festivito]

17. Fallacy of false analogy. Water dept. profit per gallon vs. Soda Co.

The water department gets a percentage profit on the amount of water it delivers. It gets the water for free, gets as much as it wants. Only delivers what will be paid. But, still gets its percentage, even after major expenditures.

The soda company does not get a percentage. It can have a high profit lose lots, or be in between depending on how well it sells its beverages.

Comparing these two profit systems as equals is silly.

FURTHER,
when the water company starts giving itself huge bonuses and pay scales while still keeping the 6% profit it's allowed, it drives up the price of water.

FURTHER,
as the water company starts to make complicated payment systems to deny water access to certain people, and uses that denial as reason to scare those people into paying higher prices for water -- the price of water goes higher and so does a 6%, or whatever percentage, straight profit percentage goes up into real money that can go into higher salaries, usually to those at the top.

This is what our health insurance companies do.

FURTHER,
since the water controllers have done this much, spike the water to make people thirstier, needier and more scared to lose their water supply.

The water company would actually gain more by not making people satisfied, as health insurance companies can gain more by not making people well, but letting their illnesses drag on or wait until those illnesses become more costly.

I'm not accusing the health companies of spiking health care, but am pointing out that it is in their best interest not to give us health. The are in business to make profit first, not to perform some public good in front of profit.

I must say that our current health care system resembles these bad effects.

[DLnyc]

43. Well said.

Insurance industries typically make a fixed percentage off their volume, by investing the premiums during the time lag between collection and any payout. Thus, larger volume, in the form of more customers and/or higher premiums, is key to their growth (and unregulated monopoly corporations, like cancer, consider growth as a good in and of itself).

By the way, I think financial industries in general, which is what the insurance industry really is, generally have high capital flows but low percentage profit (more like 2 or 3% used to be typical). So a profit rate of 6% on a large capital flow is, I think, more in the obscene category than the modest category.

[OswegoAtheist]

What a stupid comparison.

Farm and construction machinists don't make a profit by keeping 20% of the tractors they sell, Yahoo! Answers doesn't make a profit by ignoring 20% of its questions, Tupperware doesn't make money by selling sets that allows 20% of its tubs to have holes in them, and Yum foods doesn't make money by shipping every fifth bag completely empty.

Oswego "Journalism schools now teach by weight, not volume" Atheist

[lonestarnot]

18. What horseshit!

[Johnboi70]

19. Regardless, the Health Insurers add nothing for that 6% profit.

IMHO, even one cent of profit in this case is unwarranted. All the Healthcare industry is selling us is unneeded bureaucracy. This article doesn't change that. It does, however, raise some helpful cautions about what we should expect from the new system once the reform takes effect.

It's important for us to keep our eyes open here. This version of Healthcare reform, even with the public option, won't solve our problems. It might ameliorate them and set us on a better path, but we will need more reform in the near future.

The important take away from this article isn't that the Health Insurance industry has anemic profits... it does and it should... it's that we will need more reform in the near future to better reign in costs. This is the beginning of a process that will, hopefully, give Americans greater economic freedom and better situate them to engage in their own entrepreneurial pursuits.

[Lasher]

20. UnitedHealth Group was listed last year by Fortune 500 as the 30th most profitable company.

I don't see Tupperware listed there anywhere. This is unfiltered insurance industry propaganda.

http://money.cnn.com/magazines/fortune/fortune500/2008/performers/companies/profits/

[melm00se]

23. are you using the year ending 2007 or 2008 #s?

Choosing the "return on revenues" tab appears to back up the claims in the article.

Using UHC as an example:

2008:
they were #48 in raw profit #s ($2.997 billion)
but as a percentage of revenue they don't appear in the top 50

"Lies, damned lies, and statistics"

[Lasher]

30. I am using Fortune 500's 2008 list.

I linked to it. You are welcome to analyze their conclusion.

[tomm2thumbs]

29. +1

but they don't want the facts to interfere with a good AP opinion piece

[No Elephants]

24. Something else. The b word springs to mind.

Now that I've answered your question, a question of my own springs to mind:

1181 posts here since August 9, 2005 and this is the subject that moved you to come here to start a thread?

[tomm2thumbs]

25. when corporate lives like kings & queens... stocks, profits, etc

after that, nothing left to 'call a big profit'

[hedgehog]

26. If their profits are that low, then their stockholders need to get outraged

at what the managers are paying themselves.

[TreasonousBastard]

28. It probably is fairly accurate, although facts are confusing...

when one's mind is made up.

[No Elephants]

31. "It 'probably' is 'fairly' accurate?" LOL

[TreasonousBastard]

36. On the basis of 20 years or so of...

underwriting management experience and dealing with insurance budgets and income statements, I say "probably is fairly accurate."

I can't be more precise than that because individual L/E numbers tend to be proprietary.

(Now, may we have your resume and explanation of your expertise on the matter?)

[varelse]

68. That sure explains a lot

:puke:

[No Elephants]

32. As one of my former partners used to say, figures lie and liars figure.

Besides, ultimately, the issue is not what profits health insurers make. That only confuses the issue. The real issue is whether or not America needs health care reform.

If you read the entire article, though, you find enough in it to conclude that health insurers are doing just fine. Among other things, even according to AP, health insurers are 35th on the Fortune 500 list of richest industries, while drugs and medical products and services are among the top 10. (I understand, but have not checked, that hospitals were 34th.) 35th of the richest 500 ain't shabby.

Of course, 6% of a trillion dollars in gross income is a lot more than 6% of of $100,000 in gross income. And then, as other posters on this thread having pointed out, it depends upon how you define "profit."

And, while compensation of employees is not properly included in profits, there are those salaries.

Besides, shall we trace all figures used in this "fact check" of AP back to their original source? That would be....guess who...the health insurance companies, who have been fearing reform since at least Truman. But, none of that is really relevant.

And, to top it all off, current costs are messing with our economy.




Numbers that are much more to the point, though: Currently, 122 or more Americans die every single day (on average) for lack of affordable health care. Not to mention those who go bankrupt daily, many of whom HAD health insurance when a catastrophic illness struck. In fact, in some cases, people had more than one policy.

Whether it's death (RIP, Dave) or bankruptcy or a condition that got a lot more damaging because someone of modest means postponed going to the doctor, we are talking about continuing to end or ruin people's lives, unless we act, as the entire rest of our peer nations have acted. Those are things on which few want us to focus.

[NJmaverick]

33. You could also point out that the insurance industry employees are generally underpaid

The real money in healthcare is being made by pharmacuticals, MDs and imaging centers.

[No Elephants]

37. Not the higher level employees.

[NJmaverick]

39. So I have been told, but I have yet to see any factual evidence to back up this claim

[DatManFromNawlins]

59. Have a friend whose wife is a low level paper pusher for Humana

And she makes around $55K a year.

That's hardly chicken scratch in the New Orleans area.

[RoccoR5955]

34. The reason why their profits are so small

is because they spend a lot on overhead.
When you have a top exec making millions, that comes out of profit. When you have a lot of administrative staff, to deny claims, that comes out of profit. When you pay lobbyists to shill for you, that comes out of profit.

[RoccoR5955]

35. the story is bovine fecal matter! n/t

[gorfle]

38. Fat enough.

Single payer would instantly provide a minimum of 6% decrease in costs.

[Botany]

40. Please .....

When you skim off billions off the top to pay people 10s of millions dollars "the profit" looks
much less on the books.




toys like this take from the bottom line too

[lonestarnot]

41. Just happy horseshit.

[dysfunctional press]

42. then they should probably get into another line of work...

we could help them out by passing single-payer.

[Blasphemer]

52. +1

Indeed.. why are they fighting so hard to keep their hooks in such an unprofitable business? We can release them from the shackles.

[bejamin wood]

44. What does...

Farm and construction machinery, Tupperware, the railroads, Hershey sweets, Yum food brands and Yahoo have to do with healthcare?

NOTHING

Thanks AP for your apples and oranges as those businesses have a more applicable cause for profit. Is everyone out there so dilusional that they think profit = success? I think lower costs and higher life expectancy is more important than share price, but that's just me...

[closeupready]

45. Lies. Lies. Lies.

I don't believe this story for one single second.

[mulsh]

46. apples are not oranges and neither are particularly proffitable

spare me.

[Blasphemer]

54. According to the article, their profits grew "only" 8.8 percent from 2003 to 2008

Poor put upon insurance industry. The fact that they are spinning their profits as meager is reason enough to put them out of business. Certainly, if they are in such dire straits, they would do whatever necessary to increase their profit margin even if it means that it leaves people dying.

[Blue_Tires]

55. not gonna fly...remember they floated this "they barely break even" meme during

the mortgage/banking crises of late '08, and most notably the late 07-early 08 gas price spike...it was laughable then, too

[ronnie624]

56. I'd like to know where he got his numbers.

And this is a very odd statement by the propagandist who contrived this 'article':

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

Apparently, we are supposed to have already forgotten about Ingenix, a subsidiary of UnitedHealth Group, being charged with fraud earlier this year, for providing faulty insurance industry data.

<http://www.sourcewatch.org/index.php?title=Ingenix>

Study says flawed Ingenix databases are used widely
<http://www.modernhealthcare.com/article/20090624/REG/306249949>


After the fraud case, a non-profit organization was supposed to have been set up to replace Ingenix for collecting statistical data for the insurance industry, but recent information on this seems scarce (although I haven't put a lot of effort into a search).

In the meantime, it's back to business as usual for Ingenix, it seems.

Ingenix acquires consulting firm
<http://www.healthcarefinancenews.com/news/ingenix-acquires-consulting-firm>

Ingenix purchases claims-processing company
<http://www.ama-assn.org/amednews/2009/06/15/bisb0616.htm>


On edit, I just noticed his numbers come from Fortune 500

[harmonicon]

58. the "impartial" AP strikes again!!

Wow - what a bunch of fuckers.

[ItNerd4life]

60. If this study included ALL the facts, it might be meaningful.

What is the Gross Profit Margin?
What is the average salary of the workers?
What is the average sales/bonuses of the executives?
What are the capital expenses? (manufacturing companies have a lot higher capital expense)

Let's compare income and personnel costs across the board, then it might actually be meaningful.

[damntexdem]

61. The 6% profit, if accurate, even if anemic, is still unneeded waste.

As is the rest of the 20-30%, or more, added to the cost of healthcare by for-profit health insurance.

[Gormy Cuss]

62. Well gee golly gosh. Those insurers should be lobbying for a single payer plan. n/t

[Vinca]

63. Well boo freaking hoo. It's hard to have sympathy for an industry

that hires hoards of people to deny coverage to people who need it and that pays its CEOs the budget of a small country as a salary. I'm surprised they haven't outsourced the denial-of-coverage jobs the way Hershey's outsourced their candy production to Mexico.

[dflprincess]

65. I say we counter by pointing out that Tupperware sells a reliable

and useful product.

[makwu]

66. Ok...true or not, this bill doesn't address costs

I don't really care what the real profit margin is: 1%, 5%, 50%, as long as every American is covered by affordable health care. True, these numbs are probably rubbish. And true, the health care industry isn't made up of the nicest folks. But we have so demonized them that we have taken the eye of the bigger picture: Health care costs. So what if they have 20% profit if ever American has affordable coverage? Would we really be having this debate? And who cares if their bonus are "reasonable" and their profit margins are small if coverage is not affordable? I had back severe back pains and went to the ER. They saw me for 5 min, loaded me up on Vicatin, sent me home, and billed me $1500. You think the profit margins for the insurance companies are obscene? How about the drug companies that spend about a dollar a pill (all research and manufacturing costs over the lifetime of the med) and then charge $60 for it? Costs people!! The real problem has been totally ignored by all parties (Kudos to Big Pharms PR/Lobbyists).

Everybody spent all this time talking about how the insurance compaies are 28th most profitable. But how the hell did you miss the fact that Medical Products and Equipment is #1? And Big Pharm is #3? And Pharmacy services is #15????? Come on

[underpants]

67. 6% of 16% of the economy? I'll take that. The writer doesn't understand ROI or profit margin

or basically any element of accounting

ROI (Return on Investment) is virtually ignored these days. It used to be the measure on public utilities but it too long term for todays movers and shakers.

[edwardian]

69. Pure SPIN!!!

Look at AIG and you will see the huge lie this article attempts to
"report".