MAY 17, 2011
To: Editors and reporters
From: Ethan Rome, Executive Director, Health Care for America Now
Re: AHIP's Misleading data about health insurance company profits
In response to astonishingly high first-quarter profit reports from health insurance companies, the industry trade group America's Health Insurance Plans, 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 are happiest when investors want 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. The health insurance industry has 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, 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.