For every dollar spent on health care in America, less than one penny goes toward health plan profits. The focus needs to be on the other 99 cents.
Now let’s count all the ways that’s wrong:
1. $21 billion a year – the health insurers’ net for 2006, the most recent year I can find – is about 20% of the annual budget cost of health care reform. That ain’t hay.
2. Last year, Anthem racked up more than $2b in operating profit (not counting an equal-sized one-time gain). That’s one insurer in one state, albeit the biggest insurer in the biggest state. I doubt that Anthem gets 10% of total health insurance industry profits. So the current figure is probably substantially higher than the $21b from four years ago.
3. Medical loss ratios – the fraction of premium dollars going back out as paid claims – run about 80%. So in fact the insurance company consumes or keeps about 20 cents of every premium dollar.
4. The 1% isn’t the insurers’ profit margin, since the base is total health care expenditures, not insurance premiums. The actual profit-to-premium figure is about 3.3%. Even figuring profits against premiums is misleading; the right base is value-added. Of the money taken in as premiums and not paid out as claims, about 85% is expense and 15% profit.
5. Excessive executive compensation counts as “expense” rather than “profit.” The CEOs of the top five health insurers averaged $24 million in compensation in 2008.
6. The actual cost of insurance includes the burden of paperwork and delay the insurance companies impose on providers and policyholders. I haven’t seen a figure for those costs. (This is parallel to the argument about malpractice; the actual cost of malpractice awards and defense lawyers’ fees only comes to about 2% of health care costs; if malpractice is a major issue, it’s because of the effects of the threat of lawsuit on physicians’ behavior.)
But let’s not be too harsh on poor Mr. Zirklebach, who lies for a living. (As Falstaff said when accused of theft, ” ’tis no sin for a man to labour in his vocation.”) Anyway, he’s falling in to the President’s trap; if Obama can make the insurance companies the issue, the good guys win.