Not Much Gravy on this Train
A reader of my blog left a comment yesterday expressing outrage at the “gravy train” ridden by the insurance industry amid rising health care costs.
The comment got me wondering just how big the profit margins are in the health care biz. I did a little research on finance.yahoo.com and found this data for some of the nation’s leading health plan administrators:
The margins are all between 2 and 4 ½ percent. For comparison, I also looked into some better-loved firms. Here’s the numbers for Forbes Magazine’s Top 5 Admired Companies:
Clearly profitability in the health insurance industry is very modest. To find the cause of high health care costs – so burdensome to so many families - one must look somewhere other than the bottom line of insurance companies.
posted by Li Kim Grebnesi at
6:43 PM
7 Comments:
I suppose 2-4% isn't huge, but it must be worth a great deal if the health ins industry has increased their lobbying by 41% this year. They are determined to take the single payer plan off the table. If health ins, as it is now, wasn't very lucrative for the companies and their CEOs, then why not just get out of that business all together? If you have ever had a major procedure with a significant price tag, and you don't have the gold standard policy, you soon realize the bottom line for health ins is to deny coverage when at all possible...I still say they don't want too loose their gravy train...which is us...the consumer.
You are quite right. The savings from every denied claim goes straight to the bottom line of the insurance company. So let me ask you this - how come they don't deny even more claims than they do and thereby improve their lackluster profits?
There must be a level of profit that the ins industry feels is just enough as not to create outrage. If a health insurance company makes a 15% profit margin equal to Apple, basically off sick people, it would be a public relation nightmare!
Ok - I suck at the Socratic method :-) Public relations may be a factor. In addition to that, the health insurance companies have to compete with each other. If a company denied an excessive number of claims, no one would buy insurance from them. Competition provides a mechanism to balance coverage against costs. But as we see in countries that have government-run health care, a single payer free from competition controls costs by imposing rationing. The rationing can be in the form of restrictive coverage guidelines, or in the form of long waits for procedures. Without competition, most people have no where else to turn for a better deal.
I have read that this idea of health insurance competition is not what it seems. The smaller companies follow the big boys like BCBS in setting their premiums and practices. A sort of industry standard of practice. I needed health insurance and I found it very confusing and frustrating to decide what was the better plan. You have to be a very savvy consumer! We in Massachusetts are slightly insulated from what goes on in other states because we cannot be denied coverage. We have no questionnaires to fill out to disclose pre-existing conditions. As long as we have the $ to pay the premiums, we are insured. This is not true through out the country. A form of rationing is taking place!
Here is one perspective on at least part of what is wrong with the health care system that drives up costs. It is a piece from the New Yorker by Doctor Atul Gawande, a person whose clarity of thought I have almost always found impressive:
http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?yrail
John: The Gawande article was thought-provoking. I'll write a blog entry about it next week.
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