Excessive Health Insurance Profits? Insurance Cos. Are the Messengers, Not Source of Higher Costs
President Obama and Health and Human Services Secretary Kathleen Sebelius have recently launched attacks on America's health insurance for making "excessive profits," which they claim have contributed to rising insurance premiums and higher overall healthcare costs. As I have pointed out, the heath insurance industry currently ranks #88 for profit margin (profits/sales) by industry, data here.
The table above compares the profit margins for all of the sixteen separate industries in the health care sector (data here for the most recent quarter), and shows that Health Care Plans (health insurance companies) ranks #10 out of 16, behind nine other more profitable health care industries, including four drug industries, medical instruments, medical laboratories, and medical equipment.
As Larry Schreiber, president of Anthem Blue Cross and Blue Shield in Wisconsin, said recently "Insurance is expensive because health care is expensive."
So while health insurance companies are an easy political target to take the blame for rising health care costs, it's a little unfair to single them out when even many other health care industries are much more profitable. Health insurance companies are just the messengers of higher health care costs, not the source of higher costs.
Focusing on insurance company profits distracts the public from the real problem with health care, pointed out by John E. Calfee in the Wall Street Journal:
"Health insurers operate in a market in which party one (the patient) is told by party two (the doctor) what products and services to consume, while party three (the insurance firm) pays the bill, and more often than not, party four (the employer) bears the financial risk of cost overruns. That's a tough business environment in which to make money without offending someone."