Thread: By any other name ...

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.

Source

Originally Posted by Criminal Rock

Are you talking about the voucher system? If so, then you assume they're healthy, but it doesn't matter even if that's true because eventually, just like everyone else, they will get sick and require treatment. The difference is, unlike the rich or middle class, a poor person still can't afford to get sick even with the assistance of a voucher.

Yes they can, thats the whole point of the voucher. They use it to buy insurance which pays for healthcare went they get sick. Its just another welfare program like food stamps.

Originally Posted by dblack

I think you may have just identified the core delusion driving the entire health care crisis.

Im talking about on a individual basis. Its cheaper for the govt to buy a poor person insurance than to buy them health care, because the non poor healthy people will be paying more than they use.

Originally Posted by Criminal Rock

Source

Biased source. They are misleading because ROE it measures profit vs shares.

The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.



Read more: Return On Equity (ROE) Definition | Investopedia

But we're measuring it vs other industries. Thus using standard profit, income minus expenses, the real number is still about 5%.

Originally Posted by jviehe

Biased source. They are misleading because ROE it measures profit vs shares.




But we're measuring it vs other industries. Thus using standard profit, income minus expenses, the real number is still about 5%.

5% is HUGE for insurance.
And where is the incentive?
If I make 5%, and a procedure that cost $1000 is replaced by a procedure that costs $5000, then instead of making $50, I make $250.
Pretty good, huh? for processing paperwork.
Time for huge executive bonus, that counts as an expense, not profit, it's all good....right?

Originally Posted by jviehe

Biased source. They are misleading because ROE it measures profit vs shares.

But we're measuring it vs other industries. Thus using standard profit, income minus expenses, the real number is still about 5%.

According to wiki, As with many financial ratios, ROE is best used to compare companies in the same industry.

So I believe both statistics are accurate when used appropriately. Though my fault for assuming 5% isn't that high a profit margin. The healthcare industry is worth trillions of dollars, so their profits must be in the tens of billions of dollars, right?

Yes they can, thats the whole point of the voucher. They use it to buy insurance which pays for healthcare went they get sick. Its just another welfare program like food stamps.

How much are these vouchers actually worth?

Originally Posted by jviehe

Im talking about on a individual basis. Its cheaper for the govt to buy a poor person insurance than to buy them health care, because the non poor healthy people will be paying more than they use.

But so will poor healthy people. Seriously, I don't mean to pick on you. It's the psychology behind insurance. Most of us think of it as cheaper than actually paying for health care. But the reality is, for most of us it's not. It's more expensive. Health insurance wouldn't be a profitable industry if that weren't the case.

Originally Posted by fishjoel

I'm not sure you can blame it on the insurance companies. They make around a 5% profit, which isn't that high. I think there are many factors and a major one is the actual consumer not giving a shit what they are charged as long as the insurance company pays for it.

Yes, but they don't give a shit because they are insured.

In large part, I do blame the insurance industry, because they've been very happy to "leverage" their influence over government policy to make themselves money and to push people into over-insuring.

Originally Posted by Criminal Rock

According to wiki, As with many financial ratios, ROE is best used to compare companies in the same industry.

So I believe both statistics are accurate when used appropriately. Though my fault for assuming 5% isn't that high a profit margin. The healthcare industry is worth trillions of dollars, so their profits must be in the tens of billions of dollars, right?



How much are these vouchers actually worth?

Whatever the cost of the health insurance is. Its not a cash voucher. Its a stamp from the govt. The govt basically buys someone insurance (from approved vendors). Its like single payer healthcare, except they arent paying for healthcare, and its only for the poor. Again, I dont support any of these systems. Simply offering a less bad alternative.

Originally Posted by dblack

But so will poor healthy people. Seriously, I don't mean to pick on you. It's the psychology behind insurance. Most of us think of it as cheaper than actually paying for health care. But the reality is, for most of us it's not. It's more expensive. Health insurance wouldn't be a profitable industry if that weren't the case.

Of course, but its still cheaper overall for the govt as the risk is shared with other payers.

Originally Posted by Criminal Rock

Are you talking about the voucher system? If so, then you assume they're healthy, but it doesn't matter even if that's true because eventually, just like everyone else, they will get sick and require treatment. The difference is, unlike the rich or middle class, a poor person still can't afford to get sick even with the assistance of a voucher.

That depends on what a voucher is. Is it one which pays for the care? Or is it one which pays only a specific amount of money.

You are blinded by the light my friend.

I think not. You simply don't understand what I meant so you have no way to tell if I understand the issue or not.

No one is denying great care is available to those in America who can afford it, there are only a few who disagree with us on that one point, yet you claim studies on healthcare quality should be about the "quality of care" ONLY for those who receive it and doing otherwise undermines the true value of America's system. I can only take this as an ideological point of view as the empirical basis for these claims are unclear, not to mention your selective idea of "quality of care" is not useful to adequately measure America's healthcare private insurance based system against other systems. Which is the point of most studies on the subject. And considering all other top industrialized nations insure their entire population, only comparing those who have healthcare here in America wouldn't be a fair comparison to begin with.

There are many indicators one can use to determine the quality of healthcare of a system: life expectancy, costs per capita, % of cost paid by government, % of revenue spent on healthcare, mortality rates, accessibility, etc. The point of my analysis was to illustrate the difference between America's privatized system with countries that offer alternatives, such as single payer and universal coverage, and the resulting effect each system has on the Government and the entire population. This makes sense because it's the system which determines who and who does not have access to healthcare.

I mean just imagine my analysis compared infant mortality rates of several poor African nations only using statistics of mothers who had access to healthcare in, we'll say, all of those countries (assuming they have healthcare). Sure, the statistics would be a useful to demonstrate how awesome each healthcare system can be at it's best, but is entirely useless in determining the quality of each system and the effect it has on the infant mortality rate of the entire population. The same line of reasoning is used in determining the quality of healthcare systems in various countries. It's not just about what IS AVAILABLE. That's completely beside the point.

Obviously you missed my point completely. Quality medical care relates to what is available. Distribution of Quality medical care relates to who has access to what is available and what is not available.

Originally Posted by jviehe

Whatever the cost of the health insurance is. Its not a cash voucher. Its a stamp from the govt.

Why do you say that? only asking because back in 2008 McCain's healthcare plan offered cash vouchers: $2,500 to individuals and $5,000 for families. If the average cost per capita spent on healthcare is over $7,000, a $2,500 nor a $5,000 coupon is not enough to cover all costs. Ryan's plan may differ in the way it determines the value of a voucher but I imagine the value is roughly the same. Though, to be fair, I am unfamiliar with how the value is determined in Ryan's plan.

Originally Posted by dnsmith

That depends on what a voucher is. Is it one which pays for the care? Or is it one which pays only a specific amount of money.

I suppose it does, but in the end neither plan account for inflating medical costs and neither address premiums and out of pocket expenses a voucher recipient would still have to pay. So I hope we can agree, a voucher based system seems to be just another way for the poor and elderly to accrue debt.

Originally Posted by dnsmith

I think not. You simply don't understand what I meant so you have no way to tell if I understand the issue or not. Obviously you missed my point completely. Quality medical care relates to what is available. Distribution of Quality medical care relates to who has access to what is available and what is not available.

I understand exactly what you want. No need to be disingenuous. You want me to completely disregard an entire demographic here in America, 50 million people who are negatively effected by the policies of our healthcare system, simply because you have a tendency to believe the quality of America's healthcare is better than what my statistics suggest. You claimed the "life expectancy" numbers I used to compare countries with differing healthcare systems were "skewed" because it accounts for those who don't receive care here in America, and that a better [more accurate] comparison should only include those who have access to care because a study on healthcare should only be about how "good" it is... according to you.

But this is a misconception of what studies do, the point of healthcare studies between countries aren't meant to determine how "good" healthcare is only for those who have access to it, but to determine the quality of the system itself, ironically enough, which also determines who does and who does not have access. If America had universal healthcare we wouldn't be having this discussion, right? So then the problem is with the system, not the statistics.

My original post compares America's private insurance based healthcare system (a for-profit system) to other countries who have single payer, universal, and non-profit healthcare systems, and in that regard used the statistics appropriately to determine the effect each system has on the entire population of each country. But since you don't like how bad the numbers look for America, no matter how accurate they are in their intent, you want improve them. Well, I do as much as you.. so then how about we discuss which policies our government can put into place in order to improve our standing in these studies? It would be a better use of our time anyway and more on topic with the thread for all it's worth.