Thread: How much profit do Health Insurance Companies make on the policies they sell?

Dear colleagues,

I have been having some discussions with some liberal friends in another discussion group about the “pros and cons” of government-run single payer health care.

As you would imagine, these people are for government-run single payer health care because they are very opposed to our private insurers who actually make a small profit off the policies and coverage they sell to the public.

My liberal friends are not aware the profits made by the private insurers are very small. Here is some good factual information you can use if you have discussions with people who share these same views that "profit" of any kind and for any reason in our health care delivery system is somehow bad!

By the way, if you have more recent information than this on the profits made by private insurers, I would love to see it!

Health Insurance Companies Rank #88 by Industry Profit Margin, Earning $100-200 on Avg. per Policy

Byr. Mark J. Perry, Professor, School of Management,
University of Michigan

I've posted several times before about the profitability of the "Health Care Plans" industry, see posts here and here, and reported previously that the health insurance industry ranked #86 by profit margin out of 215 industries, at 3.3%.

Updated data are now available for Q4 of 2009, and the Health Care Plan industry (includes Humana, Aetna, WellPoint, Magellan, Unitedhealth Group, etc.) slipped to #88 with a profit margin of 3.4%. Actually, that industry profit margin was boosted by WellPoint's 18% profit margin for Q4 2009, which was due largely to a one-time sale of its Pharmacy Benefit Management division. Without that sale, WellPoint's profit margin would have been only 3.9%, the industry average profit margin would have been closer to 3%, and the ranking for the industry would have fallen a few places down to #92.

America's Health Insurance Plans (AHIP), the industry's trade association representing 1,300 members, reported last October that annual health insurance premiums averaged $2,985 for individual coverage and $6,328 for family plans in 2009. Using the industry average profit margin of 3.4% means that insurance companies make about $100 per policy in profits for individual coverage, and a little more than $200 in profits for each family policy.

So even if we could strip away 100% of the health insurance industry's profits, it would only save patients between $100 and 200 per year in health insurance costs.

ahoy James Cessna and welcome to USPO,

Originally Posted by James Cessna

Dear colleagues,

I have been having some discussions with some liberal friends in another discussion group about the “pros and cons” of government-run single payer health care.

As you would imagine, these people are for government-run single payer health care because they are very opposed to our private insurers who actually make a small profit off the policies and coverage they sell to the public.

My liberal friends are not aware the profits made by the private insurers are very small. Here is some good factual information you can use if you have discussions with people who share these same views that "profit" of any kind and for any reason in our health care delivery system is somehow bad!

By the way, if you have more recent information than this on the profits made by private insurers, I would love to see it!

ye raise some good points, mate. the thing is, if imma not mistaken, "profit" be a kinda slippery term. health insurance companies may not profit all that much, aye? they have to first pay salaries and executive compensation...they must first purchase them multimillion dollar jets...after they paid them fees, then they see what profit they've reaped.

here be some salaries that this low-profit industry doles out;

Ins. Co. & CEO With 2007 Total CEO Compensation

■Aetna Ronald A. Williams: $23,045,834
■Cigna H. Edward Hanway: $25,839,777
■Coventry Dale B. Wolf : $14,869,823
■Health Net Jay M. Gellert: $3,686,230
■Humana Michael McCallister: $10,312,557
■U.Health Grp Stephen J. Hemsley: $13,164,529
■WellPoint Angela Braly (2007): $9,094,271
L. Glasscock (2006): $23,886,169

Ins. Co. & CEO With 2008 Total CEO Compensation

■Aetna, Ronald A. Williams: $24,300,112
■Cigna, H. Edward Hanway: $12,236,740
■Coventry, Dale Wolf: $9,047,469
■Health Net, Jay Gellert: $4,425,355
■Humana, Michael McCallister: $4,764,309
■U. Health Group, Stephen J. Hemsley: $3,241,042
■Wellpoint, Angela Braly: $9,844,212

Health Insurance Company CEOs Total Compensation in 2008 : HEALTH REFORM WATCH

no one hath been sayin' that the reason that healthcare in our just and christian land be so expensive just due to "for profit" health insurance companies...they be just one 'o the factors that make this service so hard to afford fer many americans.

*bows*

- MeadHallPirate

Yeah, I don't think profits are the issue. Its the 20-40% (or more) wasted in unnecessary bureaucracy costs. In other words, how much of your healthcare premium goes towards health care costs, and how much goes to pay unnecessary people working in offices at the insurance company as well as their executives, corporate jets, and massive real estate holdings?

MDClick

“Inefficiency and waste represent 20 to 40 percent of health care spending,” said Dr. Richard Popiel, Horizon's chief medical officer,

Another problem has been arbitrary rejections within the rules of health insurance plans. A very typical and frustrating practice.

Originally Posted by Disillusioned_1

Yeah, I don't think profits are the issue. Its the 20-40% (or more) wasted in unnecessary bureaucracy costs. In other words, how much of your healthcare premium goes towards health care costs, and how much goes to pay unnecessary people working in offices at the insurance company as well as their executives, corporate jets, and massive real estate holdings?

MDClick

Define unnecessary. Medicare fans like to point out that it puts next to nothing toward fraud prevention. As a direct result, fraud is rampant. Those dollars appear to be going toward health care costs but in fact are not. I'd say those people are very necessary.

Obviously lefties take issue with compensation greater than their own, nothing new there.

Originally Posted by daddio

Define unnecessary. Medicare fans like to point out that it puts next to nothing toward fraud prevention.

Proof?

Originally Posted by Hoplite

Proof?

The trustees’ summary listed total Medicare expenditures of $522.8 billion for 2010, of which $7 billion was characterized as "administrative expenses." That works out to 1.3 percent -- not far off from what Boxer stated.

I'd count Boxer as a fan. 1.3% leaves little to combat fraud.

Originally Posted by daddio

The trustees’ summary listed total Medicare expenditures of $522.8 billion for 2010, of which $7 billion was characterized as "administrative expenses." That works out to 1.3 percent -- not far off from what Boxer stated.

I'd count Boxer as a fan. 1.3% leaves little to combat fraud.

I meant proof that fraud is rampant in Medicare

Additionally, I dont see any indication that the 1.3% includes fraud investigation. The article certainly doesn't say that.

Lol, if the "problem" has never been profits and just an issue with bureaucracy, then the nationalization of healthcare should be opposed by the left. Medicare and Medicaid have ridiculous amounts of bureaucracy and waste. The truth is it's just an attempt by the left to take control of more of the private sector. If they were being honest, they'd just get some balls and say that. Instead, we have to dance around the issue.

Originally Posted by daddio

Define unnecessary. Medicare fans like to point out that it puts next to nothing toward fraud prevention. As a direct result, fraud is rampant. Those dollars appear to be going toward health care costs but in fact are not. I'd say those people are very necessary.

Obviously lefties take issue with compensation greater than their own, nothing new there.

ahoy Daddio,

are ye sayin' that Disillusioned_1 be a lefty? actually, nevermind that, matey. perhaps that last bit was addressed to meself?

if that be the case, me friend, imma only pointin' out that "profits" be defined as whats left o'er after salaries and costs. i didn't say anythin' pejorative 'bout them CEO salaries, i just linked'm.

aye?

- MeadHallPirate