Health Insurance Companies Rank #86 By Industry Profit Margin, Earning $98 on Average Per Policy
During his weekly radio address last Saturday, President Obama attacked health insurers for allegedly making excessive profits and paying excessive bonuses, for spreading "bogus" misinformation about the impact of Democrats' reform agenda on the cost of health insurance, and for "figuring out how to avoid covering people." He opined that health insurers are "earning these profits and bonuses while enjoying a privileged exemption from our antitrust laws, a matter that Congress is rightfully reviewing."
Mr. Obama's comments followed hearings by the Senate Judiciary Committee last week. In an unusual move, Majority Leader Harry Reid testified as a witness, alleging that "exempting health insurance companies [from antitrust] has had a negative effect on the American people" and that "there is no reason why insurance companies should be allowed to form monopolies and dictate health choices."
~Scott Harrington's article "Competition and Health Insurance" in Wednesday's Wall Street Journal
MP: As I reported several months ago the industry "Health Care Plans" (includes Humana, Aetna, WellPoint, Magellan, etc.) ranks #86 by profit margin at only 3.3% (see table above, data here for the most recent quarter), not exactly strong evidence of "excessive profits" or monopoly power. Four health insurance companies (Molina, Health Net, Coventry, and Universal American) have profit margins below 1% for the most recent quarter, and another four (Humana, Magellan, WellCare and Centene) have profit margins between 1 and 2 percent (data here).
America's Health Insurance Plans (AHIP), the industry's trade association representing 1,300 members (how could that be a monopoly?), recently reported 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 3.3% means that insurance companies make less than $100 per policy in profits for individual coverage, and a little more than $200 in profits for each family policy. Doesn't seem too "excessive" or an indication of monopoly power, does it?
Alternatively, even if we could strip away 100% of the health insurance profits, it would only result in about $100-200 of annual savings for consumers of health insurance. Is that what we could expect then from a government-sponsored "public option" that wasn't "profit-driven" - annual savings of only $100-200?