Fact-Check: Insurance Company Profits

[JB3]

AP does a relatively fair fact-check of claims that the insurance industry makes an obscene amount of profit, as has been a popular theme in the healthcare debate.

Excerpt:

WASHINGTON (AP) - Quick quiz: What do these enterprises have in common? Farm and construction machinery, Tupperware, the railroads, Hershey sweets, Yum food brands and Yahoo? Answer: They're all more profitable than the health insurance industry. In the health care debate, Democrats and their allies have gone after insurance companies as rapacious profiteers making "immoral" and "obscene" returns while "the bodies pile up."

http://apnews.myway.com/article/20091025/D9BI4D6O1.html

While no one argues that the present system is broken, claiming that the profits of the insurance industry are out of line is just flat out inaccurate. There certainly needs to be discussions on how to better provide for patients, but pillorying the insurance companies for the (lack of) money they make should not be one of them. In addition, take a look at the numbers given for other healthcare-related companies, which show where the true problems lie. Finally, this analysis also looks at the claim that insurers experienced golden years under Bush, which is also debunked.

Also, please note the on-topic tag.

 

[Heliostat]

And how much are they paying their executives? Executive salary, bonuses, etc are all considered fixed expenses. Having high fixed expenses reduces your overall profitability. For example, if one of these insurance companies made $2 million dollars in profit, but paid their CEO $100 million in the same year, that is a lot of wasted money that could have been spent healing people. They could have paid their CEO $1 million dollars instead, and spent the other $99 million on healthcare for people like me - those who they currently reject care for. They don't reject care for people to protect their profits - they do it to ensure their CEO gets a fat bonus check. Those insurance companies pay their big shots way too much. What really needs to be looked at is total compensation for insurance company executives.

I'd prefer a socialist healthcare system, but I know that isn't going to happen, so I'd settle for a heavily regulated insurance industry. Such regulations should include a $100k cap on total compensation for anyone who works for insurance companies, no perks, no private jet, no expense account, no stock options, etc; and they'd have to register as non-profit so they dont answer to their stockholders. Until the insurance industry is accountable to the patients they serve, they are corrupt. Now, they arent accountable to patients - they're too busy serving their stockholders.

 

[jackoroe]

Good golly! Miss Nancy lied on the insurance companies. Imagine that!

 

[JB3]

And how much are they paying their executives? Executive salary, bonuses, etc are all considered fixed expenses. Having high fixed expenses reduces your overall profitability. For example, if one of these insurance companies made $2 million dollars in profit, but paid their CEO $100 million in the same year, that is a lot of wasted money that could have been spent healing people. They could have paid their CEO $1 million dollars instead, and spent the other $99 million on healthcare for people like me - those who they currently reject care for. They don't reject care for people to protect their profits - they do it to ensure their CEO gets a fat bonus check. Those insurance companies pay their big shots way too much. What really needs to be looked at is total compensation for insurance company executives.

I'd prefer a socialist healthcare system, but I know that isn't going to happen, so I'd settle for a heavily regulated insurance industry. Such regulations should include a $100k cap on total compensation for anyone who works for insurance companies, no perks, no private jet, no expense account, no stock options, etc; and they'd have to register as non-profit so they dont answer to their stockholders. Until the insurance industry is accountable to the patients they serve, they are corrupt. Now, they arent accountable to patients - they're too busy serving their stockholders.

This is not about executive pay, so take that discussion elsewhere. This discussion is specifically about the points offered in this article, as the On-topic tag denotes.

And your second point doesn't make any sense. Insurance companies HAVE to be accountable to their patients, otherwise they'll take their business elsewhere. Its the foundation of what are service-based companies; if consumers are not happy, they take their business somewhere else and the company suffers because of it.

 

[naked gent]

AP does a relatively fair fact-check of claims that the insurance industry makes an obscene amount of profit, as has been a popular theme in the healthcare debate.

The confusion here is the difference between "profit" and "profit margins".

When talking about "profit margins" the industries mentioned do have a higher return than health insurance companies but if when talking about actual "profits" then the health insurance companies come out far ahead.

So Jack if The Speaker was talking about absolute profits she did not, in fact, lie and Droid the theme you refer to is alive and well as long as we're talking about actual dollars and not the margins the companies work on.

 

[JB3]

The confusion here is the difference between "profit" and "profit margins".

When talking about "profit margins" the industries mentioned do have a higher return than health insurance companies but if when talking about actual "profits" then the health insurance companies come out far ahead.

So Jack if The Speaker was talking about absolute profits she did not, in fact, lie and Droid the theme you refer to is alive and well as long as we're talking about actual dollars and not the margins the companies work on.

The dollar amount is irrelevant. The theme bandied about by Pelosi is that the insurance companies make obscene amounts of profit at the expense of care, which is quite simply not supported by the numbers.

 

[naked gent]

The dollar amount is irrelevant. The theme bandied about by Pelosi is that the insurance companies make obscene amounts of profit at the expense of care, which is quite simply not supported by the numbers.

Dear boy profits are the dollar amount. How they could be irrelevant is beyond my
comprehension.

If you wish to make this all about margins you are free to do so just as The Speaker is free to focus on the actual dollars the health insurance companies make.

And yes the above is supported by the numbers.

 

[Heliostat]

This is not about executive pay, so take that discussion elsewhere. This discussion is specifically about the points offered in this article, as the On-topic tag denotes.

And your second point doesn't make any sense. Insurance companies HAVE to be accountable to their patients, otherwise they'll take their business elsewhere. Its the foundation of what are service-based companies; if consumers are not happy, they take their business somewhere else and the company suffers because of it.

Executive pay takes money DIRECTLY out of profits - which is what your thread was about. To claim this isn't about executive pay is just ignorance of how business expenses work. A rough accounting equasion for income for an insurance company might look like...

Revenue (insurance premiums)
minus healthcare expenses (payment to doctors, etc)
minus labor (secretaries to do paperwork, answer phones, etc)
minus fixed expenses (executive compensation, property depreciation, etc)
= Operating Income
minus income taxes
= Income

People can't take their business "elsewhere" when in many regions of the country there is only one or two insurance companies offering service. Also it does no good to go to a different insurance company when they all behave in largely the same way. Furthermore, if you go and try to buy new insurance, because you're tired of the bullshit at your old insurance company - they will check your medical records. If you've been sick recently - even some ridiculous minor thing, they WILL reject you outright.

 

[JB3]

Dear boy profits are the dollar amount. How they could be irrelevant is beyond my
comprehension.

If you wish to make this all about margins you are free to do so just as The Speaker is free to focus on the actual dollars the health insurance companies make.

And yes the above is supported by the numbers.

No, it most certainly is not. The insurance industry is massive, so massive in fact that the dollar amount is inconsequential. (just as it is in the oil industry) So, of COURSE there's going to be a lot of money, but it must be viewed in terms of their TOTAL REVENUE. It does not matter if they have X amount of profit if they're spending X times however many tens of billions on care.

It is disingenuous at best, and flat out deception at worst, for the speaker to claim that they're making outrageous profits without noting that they spend outrageous amounts to get there, and the amount of money that they put back into the system.

 

[opinterph]

Executive pay takes money DIRECTLY out of profits - which is what your thread was about.

If the creator of an “On-Topic” thread wishes to exclude specific aspects of a subject from the thread’s discussion, we should try to respect his wishes. What percentage of total revenue do you suppose executive pay comprises in the healthcare industry?

The dollar amount is irrelevant.

That depends on how the numbers are tabulated.

(from the link)

THE NUMBERS:

Health insurers posted a 2.2 percent profit margin last year …

Is the 2.2 percent figure the average percent profit reported by all healthcare providers? In other words, is a company with gross revenue of only a few million dollars represented equally with other companies that provide services for a much larger percentage of the market? It would be interesting to see the data behind Mr. Woodward’s tabulations.

Here are some random figures from WSJ:


UnitedHealth Group Inc. (UNH)

3rd quarter of 2009 Net Income before Taxes/Total Revenue = 1,539,000,000/ 21,695,000,000 = 7.1%

2008 Net Income before Taxes/Total Revenue = 4,624,000,000/ 81,186,000,000 = 5.7%​

Aetna Inc. (AET)

3rd quarter of 2009 Net Income before Taxes/Total Revenue = 515,400,000/ 8,670,800,000 = 5.9%

2008 Net Income before Taxes/Total Revenue = 2,174,200,000/ 30,950,700,000 = 7.0%​

CIGNA Corp. (CI)

3rd quarter of 2009 Net Income before Taxes/Total Revenue = 630,000,000/ 4,488,000,000 = 14.0%

2008 Net Income before Taxes/Total Revenue = 378,000,000/ 19,101,000,000 = 2.0%​

WellPoint Inc. (WLP)

3rd quarter of 2009 Net Income before Taxes/Total Revenue = 1,052,500,000/ 15,413,200,000 = 6.8%

2008 Net Income before Taxes/Total Revenue = 3,122,400,000/ 61,251,100,000 = 5.1%​

 

[JB3]

I should note that I am not trying to exclude executive pay because of its lack of value as a discussion point;

I wish to exclude it because this article makes no mention of it, and as such there is no 'jumping off point', so to speak, for a discussion of it.

If someone would like to find another article that discusses that, I do think it would be a valuable topic to discuss in another thread.

 

[archive]

I should note that I am not trying to exclude executive pay because of its lack of value as a discussion point;

I wish to exclude it because this article makes no mention of it, and as such there is no 'jumping off point', so to speak, for a discussion of it.

If someone would like to find another article that discusses that, I do think it would be a valuable topic to discuss in another thread.

arert you admitting that the article is incomplete?

 

[JB3]

arert you admitting that the article is incomplete?

No. The article is not about executive pay, its about profit in comparison to other industries.

 

[Kulindahr]

Those insurance companies pay their big shots way too much. What really needs to be looked at is total compensation for insurance company executives.

I'd prefer a socialist healthcare system, but I know that isn't going to happen, so I'd settle for a heavily regulated insurance industry. Such regulations should include a $100k cap on total compensation for anyone who works for insurance companies, no perks, no private jet, no expense account, no stock options, etc; and they'd have to register as non-profit so they dont answer to their stockholders. Until the insurance industry is accountable to the patients they serve, they are corrupt. Now, they arent accountable to patients - they're too busy serving their stockholders.

If you cap executive salaries low, you're going to change the profits, all right -- there won't be any, and the company will collapse, and no one will get care. Companies have to be responsive not just to their customers, but to the market of talented people to run them. No talent, no run, no profit....

This is not about executive pay, so take that discussion elsewhere. This discussion is specifically about the points offered in this article, as the On-topic tag denotes.

Don't make the topic too narrow; it could die of that. Executive pay does have to do with profit.

And your second point doesn't make any sense. Insurance companies HAVE to be accountable to their patients, otherwise they'll take their business elsewhere. Its the foundation of what are service-based companies; if consumers are not happy, they take their business somewhere else and the company suffers because of it.

There is a lot of limit to customer responsiveness. For example, hardly anyone with insurance through their employer has a choice of insurance. Feedback there comes second-hand, and what drives a company in choosing an insurance carrier isn't necessarily the same thing that concerns the patient. That is one reason that insurance outfits don't have to be as responsive to patient needs as they would if they were direct-service organizations, instead of secondary.

Dear boy profits are the dollar amount. How they could be irrelevant is beyond my
comprehension.

If you wish to make this all about margins you are free to do so just as The Speaker is free to focus on the actual dollars the health insurance companies make.

And yes the above is supported by the numbers.

Yes... and no.

If I have a business that is so massive that a mere 0.5% profit margin brings me $4 billion in a year, that's "lots of profit", but it is also low in profitability. Profitability means good return on investment, not just dollar amounts; in that business, investors would be getting lousy dividends, if any. Further, my business would be so fragile in the face of market changes that investors would shy away anyway, because a very simple shift in things could turn my 0.5% profit margin into a 4% loss.

Having lots of dollars is kind of like having lots of water: whether you can swim in it depends on how much area you have to spread it over. A thin profit margin is like a shallow pool -- good for wading, but dangerous for other uses.


To think of it another way, consider a family that just inherited one million dollars. We might say, "They're rich!", because of the amount, but if we then find out that the family in question has twenty people in it, will we still think they're rich? What if it has two hundred?

Profit has to be looked at in the same way: whether it's a lot of money depends on how far it has to spread.

 

[archive]

No. The article is not about executive pay, its about profit in comparison to other industries.

u should listen to kuli....

when one is tackling a problem you dont tackle part of it...or you go round and round...

and the article is incomplete....

 

[Kulindahr]

CIGNA Corp. (CI)

3rd quarter of 2009 EBIT/Total Revenue = 630,000,000/ 4,488,000,000 = 14.0%

2008 EBIT/Total Revenue = 378,000,000/ 19,101,000,000 = 2.0%​

NOTE: “EBIT” stands for Earnings Before Income Taxes.

I'm stuck with CIGNA for some things. One reason for that jump in profitability to 14% is that they raised the standard fees for a lot of things all at once (co-pay, etc.). But according to a letter I got, they're supposedly sticking most of that in a reserve to deal with future claims.

Looking at that 2% jump to 14%, though, I'd say they over-corrected.

 

[Kulindahr]

No. The article is not about executive pay, its about profit in comparison to other industries.

Well, in that case...

I WANT TO KICK MY EDWARD JONES GUY!

Two years ago I was interested in railroad stock. He talked me out of it.... did you see that score in relation to health insurance?!


Droid, if you limit the discussion that narrowly, it's going to be nothing but a dispute over how to measure profit -- like is already here.

 

[JB3]

u should listen to kuli....

when one is tackling a problem you dont tackle part of it...or you go round and round...

and the article is incomplete....

No, the article is not incomplete. It is dealing specifically with the claim that insurers have giant profits, and executive pay is not brought into it. I did not think it was appropriate for it to be included here because it was not a part of the article at hand.

 

[archive]

No, the article is not incomplete. It is dealing specifically with the claim that insurers have giant profits, and executive pay is not brought into it. I did not think it was appropriate for it to be included here because it was not a part of the article at hand.

ok...you win lol...ill just slink back into the darkness and not play in these ridiculous parameters

 

[JB3]

If people would like to discuss executive pay, fine. But it should at least have something to do with the impact on their profit, etc.