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Ethan Rome Headshot

The Truth About Health Insurance Company Profits: They're Excessive

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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.