Wednesday, October 21, 2009

Do Health Insurance Companies make too Much?

We are told, daily, about the "exploitative" profits being made by the large health insurance companies in the form of premiums. The "huge" amount of dollars collected should be grounds for the massive take over of health care by the government, we are often told by the media. Politicians discuss these companies like preachers from the pulpit, using terms such as "immoral" and "disgusting" as measures of the amounts they make. According to the Associated Press, the real numbers show a different story.

Health insurance profit margins run around 6 percent, give or take a point or two. That is very small compared to other forms of insurance and below the standard 7 percent most of us learned in economic classes as the corporate average for profits.

Here are some of the points from the AP article:

  • Health insurers posted a 2.2 percent profit margin last year, placing them 35th on the Fortune 500 list of top industries. It is not at all surprising that other health sectors did far better -- drugs and medical products and services were both in the top 10.
  • Doing better still -- at the top of the list -- network and other communications equipment, at 20.4 percent; the railroads brought in a 12.6 percent profit margin.
  • HealthSpring, the best performer in the health insurance industry, posted 5.4 percent; that mark proved less than Tupperware, Clorox bleach and Molson and Coors beers.
  • UnitedHealth Group, reporting third quarter results last week, saw a better picture; it obtained a 5 percent profit margin on an 8 percent growth in revenue.

  • We have been told that the Bush Administration provided the "hot years" for health insurance companies. Reality, again, shows something else as 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.
  • So what companies were the real performers? Surprisingly the list includes Tupperware Brands, 7.5 percent; Yahoo, 5.9 percent; Hershey, 6.1 percent; Clorox, 8.7 percent; Molson Coors Brewing, 8.1 percent; construction and farm machinery, 5 percent; Yum Brands 8.5 percent.

I personally do not care how much a business makes as long as its profits are legal and they face competition. The Obama Administration likes to complain about the health insurance industry "monopoly" on health care, as if we were all dealing with a single company. In light of the fact health insurance companies are making considerably less than other industries, it is clear that these companies do not enjoy anything like a monopoly. We will not, however, be able to say the same about Obama's public option.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

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