The health insurance industry's mouthpiece doesn't want the rest of us to know what Wall Street knows well -- the record-breaking profits of the health insurance companies are, in fact, excessive.
In response to astonishingly high first-quarter profit reports from health insurance companies, the industry trade group America's Health Insurance Plans (AHIP), claims it is among the least profitable health care industries. AHIP says the health insurance industry profit margin is only 4.4%, and that this "low margin" represents less than one penny out of every dollar spent on all health care in the U.S. These are simplistic and misleading statistics.
Last week the New York Times reported that the health insurance industry is enjoying record earnings while millions of Americans get less medical care. Wall Street investors are delighted with the industry's profits, and to health insurance executives, that's all that counts. Insurance CEOs want investors to buy their stock and keep share prices marching higher, and that's exactly what has happened. To achieve excessive profits, insurers are happy to gouge consumers and small businesses, do little to rein in medical costs and spend billions of our premium dollars on lobbying, secret political activities, bloated executive pay and stock buybacks.
AHIP's focus on profit margins is misleading and designed to protect their massive income by shifting attention away from their return on equity -- a key measure of profits as a percentage of the amount invested. That return is a phenomenal 16.1% as of today. By that measure, health insurers are ranked fourth highest of the 16 industries in the health care sector. They also deliver a higher return for investors than cellphone companies, beer companies, mortgage companies, life insurance companies, TV broadcasters, drug store companies or grocery stores.
AHIP likes to talk about how insurance profits are a small share of national health spending -- less then one penny of every dollar spent on health care in the U.S. -- but that is an absurd, deceptive and self-serving statistic. Yet even their own chart of this data shows that the share of the health care economy sucked up by health insurance profits has more than tripled over the past decade.
One penny of the health care dollar is worth $347 billion over 10 years ending in 2019. That one penny would pay for more than one-third of the entire cost of the health reform program.
In response to a memo that Health Care for America Now (HCAN) sent to news outlets yesterday, AHIP attacked HCAN for pointing out the insurance industry's misleading use of statistics. Yet AHIP did not challenge the validity of HCAN's critique. That makes sense, because they are wrong on this issue.
The health insurance industry is also wrong to oppose the Affordable Care Act (ACA) by bankrolling the Republican repeal effort. The ACA expands coverage, ends the worst insurance company abuses, reduces health care costs, and reduces the federal deficit while building on the private insurance system.
The Republicans' relentless opposition to the law is a naked appeal to their extreme right-wing base and an attack on people already benefiting from it -- millions of seniors, children, young adults, families and small businesses. It's time for AHIP to turn away from Republican politics and vigorously support implementation of the law.
Cross-posted on the NOW!Blog here.
Follow Ethan Rome on Twitter: www.twitter.com/@HCAN
Health Care costs are excessive.
Does anyone see a connection here?
i) Raise your Deductible - This is the amount you pay out of your own pocket before the car insurance company pays anything. As an example, raising your deductible from $100 to $500 will reduce your monthly car insurance premiums by 10% to 20%. This will also make you a more responsible driver knowing a lot of your own money is at stake; and over the long term, you will maintain a better driving record versus if you have no responsibility.
ii) Drop Collision & Comprehensive Coverage - If you have an older car, this makes sense. If your car is old & not worth much, why pay high premiums if you are going to replace it anyways if it gets in to an accident.
iii) Comparison Shop - Do not assume that all insurance companies charge the same rate. Search for the best insurance rates from multiple companies. Be sure to check out the rates at Tesco Car Insurance.
Source: http://www.tesco-car-insurance-quote.com/
iv) Drive Safely - Do not speed, take unnecessary risks when driving & always maintain a safe driving distance from other cars. Accidents can greatly increase your car insurance premiums so be careful.
vii) Shop for Insurance before you buy - If you plan to buy a sports car, be prepared to pay a higher car insurance premiums than regular cars. Cars that are expensive to repair or heavy targets for thieves have higher insurance
Your present insurance provider will keep inching up your premiums each year even if you have a great record. A new insurance company will create a new baseline that is often lower than your current provider. Start over and then in a few years, go shopping again.
And the PPACA only exacerbated the cost problem. The biggest driver of healthcare cost inflation has been a medical industry divorced from the normal market price constraints. This has been facilitated for decades by companies bearing nearly the full cost of very rich benefit plans. They were able to hide premium increases with lost wage increases. It is only recently that companies have started to shift the burden to consumers which has for the first time created loud calls for pricing discipline in the healthcare industry. If they had done that decades ago we would not have the cost problem we have today. But the PPACA only fursthers the problem with hefty premium subsidies and mandated rich benefit plans.
And the PPACA will assuredly add to the defecit. The $500 billion in Medicare cuts will never happen and for good reason. It would drive a great many rural and inner city hospitals to bankruptcy.
You are right though. Too often there are only one or two carriers in an area with competitive contracts with the local docs and facilities. That is a complicated problem with no easy solutions. Allowing insurers to sell across state lines would be the biggest single thing that could be done, but there are plenty of problems that come with that as well.
Personally, I do not want to wait for a terminal illness. Sometime after I turn 80, I want to pick a good time to die. Before I am bed-bound, before I am lonely, while I can still wipe my own ass. Before I give the taxpayer a bill for $100k. Switzerland, here I come.
Some insurers are mutual companies and may declare dividends to the policy holders. And some for profit companies may declare dividends to the shareholders and your 401 K may be enhanced.
Quit whining with the wealth envy syndrome. The public benefits when insurers are rock solid.
Want to save between 1 to 10 times the amount in profits by insurance companies. Medical Malpractice reform is estimated to save between 1 to 10 times the amount. A Stanford study in the mid-90's estimated it at 6%. Other groups at between 10-15% and as little as 1%. Why no ruckus of this item. Hmmm Plaintiffs Lawyers are one of the most potent (read: $$$) for Congress
Want to save another $300B? Congress passed a law that requires a gradual reduction in doctor reimbursement for Medicare about 7 years ago. Every year, they have deferred putting this requirement into effect. BTW - the OMB assumes that it WILL go into effect under the healthcare law. Congress has once again deferred this cost reduction for another 6 months. Total effect over 10 years = $300B.
Isn’t a bit disingenuous to point out an industries ROE, without putting it in perspective of what other industries make. Assuming 16.1%, that really is not anything to write back about, especially when one takes into account the additional risk that they assume on that equity, that say other industries do not, and the fact that they are subjected to more regulation and, in some cases more taxes, on the gains from equity. In short, your analysis is incomplete and not really that rigorous. Fourth in health care industry really does not say much considering the risk they incur. But lest look at a few full-year rankings from Value Line:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/roe.html
Insurance (Prop/Casualty), 11.48%
Insurance Life, 9.09%
Medical supplies, 18.54%
Medical Services, 13.47%
Other
Aerospace, 23.91%.
Education Services, 22.74%
Publishing, 55.74%
Restaurants, 27.13%
Mr. Rome looking at the ROE on insurance compared to, say, starting a school or selling medical supplies or even opening a restaurant seems almost not worth it. If what you really seek is parity compared to risk-reward, they should be allowed to at least double the ROE to be on par with the less risky education services industry…Agreed?
In short, it looks like they are not making enough.
Kai
So maybe the problem isn't with the insurance industry but with your specific provider.
Regardless, they are not responsible for the cost increases of medical care and being wrongly targeted as is their profit model, which was the point of the erroneous article by Mr Rome above.
Kai