FACT CHECK: Health insurer profits not so fat

[kaydee457 13]

Given Obama and friends have demonized this entire industry it's always nice to know the facts....

WASHINGTON – 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."

Ledgers tell a different reality. Health insurance profit margins typically run about 6 percent, give or take a point or two. That's anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.

Profits barely exceeded 2 percent of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans.

Insurers are an expedient target for leaders who want a government-run plan in the marketplace. Such a public option would force private insurers to trim profits and restrain premiums to compete, the argument goes. This would "keep insurance companies honest," says President Barack Obama.

The debate is loaded with intimations that insurers are less than straight, when they are not flatly accused of malfeasance.

They may not have helped their case by commissioning a report that looked primarily at the elements of health care legislation that might drive consumer costs up while ignoring elements aimed at bringing costs down. Few in the debate seem interested in a true balance sheet.

But in pillorying insurers over profits, the critics are on shaky ground. A look at some claims, and the numbers:

THE CLAIMS

"]_"I'm very pleased that (Democratic leaders) will be talking, too, about the immoral profits being made by the insurance industry and how those profits have increased in the Bush years." House Speaker Nancy Pelosi, D-Calif., who also welcomed the attention being drawn to insurers' "obscene profits.

_"Keeping the status quo may be what the insurance industry wants their premiums have more than doubled in the last decade and their profits have skyrocketed." Maryland Rep. Chris Van Hollen, member of the Democratic leadership.

_"Health insurance companies are willing to let the bodies pile up as long as their profits are safe." A MoveOn.org ad.

."

THE NUMBERS:

Health insurers posted a 2.2 percent profit margin last year, placing them 35th on the Fortune 500 list of top industries. As is typical, other health sectors did much better — drugs and medical products and services were both in the top 10.

The railroads brought in a 12.6 percent profit margin. Leading the list: network and other communications equipment, at 20.4 percent.

HealthSpring, the best performer in the health insurance industry, posted 5.4 percent. That's a less profitable margin than was achieved by the makers of Tupperware, Clorox bleach and Molson and Coors beers.

The star among the health insurance companies did, however, nose out Jack in the Box restaurants, which only achieved a 4 percent margin.

UnitedHealth Group, reporting third quarter results last week, saw fortunes improve. It managed a 5 percent profit margin on an 8 percent growth in revenue.

Van Hollen is right that premiums have more than doubled in a decade, according to a Kaiser Family Foundation study that found a 131 percent increase.

But were the Bush years golden ones for health insurers?

Not judging by profit margins, profit growth or returns to shareholders. The industry's overall profits grew only 8.8 percent from 2003 to 2008, and its margins year to year, from 2005 forward, never cracked 8 percent.

The latest annual profit margins of a selection of products, services and industries: Tupperware Brands, 7.5 percent; Yahoo, 5.9 percent; Hershey, 6.1 percent; Clorox, 8.7 percent; Molson Coors Brewing, 8.1 percent; construction and farm machinery, 5 percent; Yum Brands (think KFC, Pizza Hut, Taco Bell), 8.5 percent.

story

Edited October 25, 2009 by *entitlements_yay

[rebeccajo 14]

Well, if all of that is true, then why are people paying more and more for their premiums, deductibles and co-pays each year?

Could it be because their health insurance premiums are a BUSINESS DECISION for their employers, and not an EARNED BENEFIT?

Speaking of United Health Group:

In 2006, the Securities and Exchange Commission began investigating the conduct of UnitedHealth Group's management and directors, for backdating of stock options. Investigations were also begun by the Internal Revenue Service and prosecutors in the U.S. attorney's office for the Southern District of New York, who subpoenaed documents from the company. The investigations came to light after a series of probing stories in the Wall Street Journal in May 2006, discussing apparent backdating of hundreds of millions of dollars' worth of stock options by UHC management. The backdating apparently occurred with the knowledge and approval of the directors, according to the Journal. Major shareholders have filed lawsuits accusing former New Jersey governor Thomas Kean and UHC's other directors of failing in their fiduciary duty.[5][6] On October 15, 2006, CEO William W. McGuire was forced to resign, and relinquish hundreds of millions of dollars in stock options. On December 6, 2007, the SEC announced a settlement under which McGuire will repay $468 million, as a partial settlement of the backdating prosecution. Legal actions filed by the SEC against UnitedHealth Group itself are still pending. [7]

In June 2006, the American Chiropractic Association filed a national class action lawsuit against the American Chiropractic Network (ACN), which is owned by UnitedHealth Group and administers chiropractic benefits, and against UnitedHealth Group itself, for alleged practices in violation of the federal RICO act.[8]

Ingenix

UnitedHealth Group asserts that Ingenix (a subsidiary of UnitedHealth Group) is the "industry leader" in quantifying "reasonable and customary rates" for medical services. Health insurance companies pay Ingenix to gain access to these rate determinations. As most health insurance plans contain an exclusion for coverage of services that exceed the reasonable and customary rate, this valuation is a way for insurance companies to deny coverage.

In February 2008, New York State Attorney General Andrew M. Cuomo announced that he was conducting an industry-wide investigation into a scheme by health insurers to defraud consumers by manipulating reasonable and customary rates. The announcement included a statement that Cuomo intended "to file suit against Ingenix, Inc., its parent UnitedHealth Group (NYSE: UNH), and three additional subsidiaries." Cuomo's investigation found that Ingenix databases used to quantify reasonable and customary rates were remarkably lower than the actual cost of typical medical expenses. This inappropriately provides health insurance companies with basis to deny a portion of provider claims, thereby pushing costs down to members. [9]

On January 15, 2009, UnitedHealth Group announced a $350 million settlement of three class action lawsuits filed in Federal court by the American Medical Association, UnitedHealth Group members, healthcare providers, and state medical societies for not paying out-of-network benefits. This settlement came two days after a similar settlement with Cuomo.[10]

Options Backdating Investigations and Lawsuits

In 2006, the Securities and Exchange Commission began investigating the conduct of UnitedHealth Group's management and directors, including Dr. McGuire, as did the Internal Revenue Service and prosecutors in the U.S. attorney's office for the Southern District of New York, who have subpoenaed documents from the company.

The investigations came to light after a series of probing stories in the Wall Street Journal in May 2006, discussing the apparent backdating of hundreds of millions of dollars' worth of stock options—in a process called options backdating—by UnitedHealth Group management. The backdating apparently occurred with the knowledge and approval of the directors, according to the Journal. Major shareholders have filed lawsuits accusing former New Jersey governor Thomas Kean and UnitedHealth Group's other directors of failing in their fiduciary duty.[5][11]

Resignation of McGuire

On October 15, 2006, it was announced that McGuire would step down immediately as chairman and director of UnitedHealth Group, and step down as CEO on December 1, 2006 due to his involvement in the employee stock options scandal. Simultaneously, it was announced that he would be replaced as CEO by Stephen Hemsley, who has served as President and COO and is a member of the board of directors. [12] McGuire's exit compensation from UnitedHealth, expected to be around $1.1 billion, would be the largest golden parachute in the history of corporate America.[13]

McGuire's compensation became controversial again on May 21, 2009, when Elizabeth Edwards, speaking on The Daily Show, used it to support her argument for a public alternative to commercial insurance[14]. Edwards stressed the importance of restoring competition in health insurance markets noting that at one point, "the President of United Health made so much money, that one of every $700 that was spent in this country on health care went to pay him":

Estimates of McGuire's 2005 compensation range from $59,625,444 [15] to $124.8 million[16], and the revenue of United Health Care was then $71 billion. It has therefore been suggested that Mrs Edwards may have meant to say that one of every $700 that was spent on United Health Care premiums went to pay McGuire.

McGuire's Settlement With SEC

On 6 December 2007, the SEC announced a settlement under which McGuire was to repay $468 million, including a $7 million civil penalty, as a partial settlement of the backdating prosecution. He was also barred from serving as an officer or director of a public company for ten years.[17][18][19] This was the first time in which the little-used "clawback" provision under the Sarbanes-Oxley Act was used against an individual by the SEC. The SEC continued its investigations even after it in 2008 settled legal actions against both United Health Care itself and its former general counsel.[20].

http://en.wikipedia.org/wiki/UnitedHealth_Group

Edited October 25, 2009 by rebeccajo

[kaydee457 13]

Umm, how about their outlays are higher and higher...How about Tort reform? How about the increased costs of drugs and procedures?

[rebeccajo 14]

Umm, how about their outlays are higher and higher...How about Tort reform? How about the increased costs of drugs and procedures?

Is Tort Reform expensive?

[DeadPoolX 9]

Umm, how about their outlays are higher and higher...How about Tort reform? How about the increased costs of drugs and procedures?

Is Tort Reform expensive?

Yeah, it is. But the fact remains that tort reform is still needed, even if government takes full or partial control over the health care system.

[Mr. Big Dog 10,747]

McGuire's exit compensation from UnitedHealth, expected to be around $1.1 billion, would be the largest golden parachute in the history of corporate America.

Interesting that the larges golden parachute in history goes to the CEO of a company in an industry that allegedly produces small profits.

[Peikko 1,575]

Is the suggestion from the OP that health insurance in the US is provided, not because it is extremely profitable for the insurance companies but because the companies are essentially philanthropic?

[Mr. Big Dog 10,747]

Is the suggestion from the OP that health insurance in the US is provided, not because it is extremely profitable for the insurance companies but because the companies are essentially philanthropic?

Must be something like that. They're just in it to help the people, you know?

[JimVaPhuong 4,863]

Is the suggestion from the OP that health insurance in the US is provided, not because it is extremely profitable for the insurance companies but because the companies are essentially philanthropic?

The "suggestion" is obviously that vilifying the health insurance companies for their "obscene profits" is a straw man, since their profits are moderate compared to other industries. They are attacked by Pelosi and her ilk because it's politically expedient to attack large corporations, since many people see them as evil simply because they are large and they are corporations.

Every "reform" bill or measure currently being floated in Washington pretends to require the cooperation of the health insurance industry. Initially, the designers of these bills and measures were working WITH the insurance companies to craft legislation that would allow them to continue paying for health care services (without doing anything to lower the cost of those services), and significantly reduce premiums by distributing the risk across a much larger group consisting of a larger percentage of healthy persons paying into the pool. This is the same formula that allows an employer to negotiate lower premiums for their employees - everyone in the group is covered, whether they are healthy or sick. The Senate committee led by Max Baucus gutted this provision, allowing people at the bottom end of the income spectrum to opt out without penalty, and lowering the penalty for millions of others. However, the requirement that the insurance companies provide coverage to everyone who wants it, even if they have a pre-existing condition, remained. The net result is that millions will opt to pay the less expensive penalty when they are healthy, and only purchase insurance when they are sick. The health insurance industry rightly called them out on this, saying it would raise premiums for everyone because it eliminates the distributed risk. How did Congress respond? By moving to revoke the anti-trust exclusion that the health insurance industry has enjoyed since 1945.

Nothing like negotiating in good faith.

With the return of the "public option", the fate of the evil health insurance companies is sealed. There is no way a private corporation can compete with the US government, when the government can operate at a loss indefinitely without going "out of business". The only possible outcome is that the health insurance companies will collapse, leaving only the government to collect premiums and pay claims - i.e., a single-payer system. The designers of these bills and measures are well aware of this, because this was the goal from the beginning. The payer can only effectively dictate the cost of services when there is only one payer. This will definitely reign in health care costs because a health care provider will either have to accept what the government is willing to pay, or not provide the service. Many health care providers will do the latter, simply because they won't be able to provide quality services at the prices the government is paying. The providers that remain will be doing everything they can to reduce costs in order to maximize profits, with almost complete disregard to quality.

If there's any upshot to all of this, it's that upper income Canadians will no longer be coming to the US for health care services, since the quality of services here will suck as much as they do there, but we'll probably have to wait longer for them.

[Peikko 1,575]

Ah, the old 'slippery slope' so let's do nothing argument?

[Mr. Big Dog 10,747]

The health insurance industry rightly called them out on this, saying it would raise premiums for everyone because it eliminates the distributed risk.

Not even the author of the infamous AHIP report disputes that this was a hack piece.

America’s Health Insurance Plans engaged PricewaterhouseCoopers to prepare a report that focused on four components of the Senate Finance Committee proposal:

· Insurance market reforms and consumer protections that would raise health insurance premiums for individuals and families if the reforms are not coupled with an effective coverage requirement.

· An excise tax on employer-sponsored high value health plans.

· Cuts in payment rates in public programs that could increase cost shifting to private sector businesses and consumers.

· New taxes on health sector entities.

The analysis concluded that collectively the four provisions would raise premiums for private health insurance coverage. As the report itself acknowledges, other provisions that are part of health reform proposals were not included in the PwC analysis. The report stated on page 1:

“The reform packages under consideration have other provisions that we have not included in this analysis. We have not estimated the impact of the new subsidies on the net insurance cost to households. Also, if other provisions in health care reform are successful in lowering costs over the long term, those improvements would offset some of the impacts we have estimated.”

Edited October 25, 2009 by Mr. Big Dog

[Mr. Big Dog 10,747]

With the return of the "public option", the fate of the evil health insurance companies is sealed. There is no way a private corporation can compete with the US government, when the government can operate at a loss indefinitely without going "out of business".

Wrong again. We have a public option property insurance here in Florida that directly competes with private insurers. This evil, socialist public insurance option was established by our conservative government (both the legislature and executive are in GOP hands) a couple of years ago. Not only does private homeowners insurance continue to exist in the state but it has also dropped the premiums in order to remain competitive. My private insurance premiums ave dropped roughly 30% over the last two years. Coincidence? I think not.

[JimVaPhuong 4,863]

With the return of the "public option", the fate of the evil health insurance companies is sealed. There is no way a private corporation can compete with the US government, when the government can operate at a loss indefinitely without going "out of business".

Wrong again. We have a public option property insurance here in Florida that directly competes with private insurers. This evil, socialist public insurance option was established by our conservative government (both the legislature and executive are in GOP hands) a couple of years ago. Not only does private homeowners insurance continue to exist in the state but it has also dropped the premiums in order to remain competitive. My private insurance premiums ave dropped roughly 30% over the last two years. Coincidence? I think not.

My private property insurance has also dropped (though not by 30%), and we have no such public property insurance option. We DO have a public option for earthquake insurance, which (along with flooding) isn't covered by standard homeowner policies. The reason my rates have declined is because the cost of replacing my home has declined, primarily because demand for materials and labor have plummeted. No contractor in his right mind is going to quote you the same replacement cost for your home today that he would have quoted you two years ago.

Like everyone involved in real estate, private home insurers were taking advantage of the balloon market to inflate their prices. It's obvious from the figures in the AP article the OP cited that health care insurance companies are not raking in massive profits. With an average margin of about 5%, do you think the health insurance companies could survive a 30% drop in revenues? I think not.

Ah, the old 'slippery slope' so let's do nothing argument?

Not at all. If they're going to go to a single-payer system, then they should just do it. There is no point in spending hundreds of billions of dollars and destroying companies and lives in the process.

First, a misnomer that's been used incessantly in this debate is that there is a "health care system". There is no system. It's a private industry comprised of thousands of companies (large and small) and individuals (like private practice doctors). Without a system, there is no "system" to reform or overhaul. When the government bailed out the automotive industry and took over General Motors, I don't recall anyone referring to the "automotive manufacturing system". The only way the government can do what they claim they are doing is to effectively take control of a private industry. I would have a lot more respect for what they are trying to do if they'd call it what it really is - a government takeover.

If they were forthright about it, and just said "We're going to nationalize the health care industry, and we're going to tax you xx% of your wages to pay for it", I wouldn't like it but I would accept it, if it's what the people of the US really want. I don't go around throwing out words like "socialist" or "communist" because they don't offend people who really are socialists or communists. I also have no problem with people having an agenda, even if it's diametrically opposed to my own wants and beliefs. I just don't like being lied to.

[Mr. Big Dog 10,747]

With an average margin of about 5%, do you think the health insurance companies could survive a 30% drop in revenues? I think not.

Of course they could. Watch it unfold.

[JimVaPhuong 4,863]

With an average margin of about 5%, do you think the health insurance companies could survive a 30% drop in revenues? I think not.

Of course they could. Watch it unfold.

I see, then you're siding with the hard core right wing extremists, since they're the only ones who are saying that health insurance revenues will actually fall under the proposed legislation. Most people, even moderate Republicans, agree that health insurance revenues will increase substantially. Makes sense - a lot more people will be buying insuring because they HAVE to.

Where the right and left seem to disagree is whether the health insurance companies will still manage to make a profit with those higher revenues. Those on the left say yes - more revenues always equals more profit. Those on the right say no - a higher proportion of the insured people will be sick and collecting more in benefits than they are paying because it's cheaper to pay the fines when they are healthy rather than buy insurance. I haven't heard a cogent argument from the left to counter the claims being made by those on the right, other than "shut up or we'll revoke your anti-trust exclusion".