Good Article on Healthcare: Obama’s Bad Guy Health Insurers Not So Profitable

Obama’s Bad Guy Health Insurers Not So Profitable, as if profitability is evil or something.

Generally well-researched articles at this blog. H/T to Flopping Aces.

Click on More to read entire article here.

When you get the AP doing fact checking, you have to know something’s amiss in Obama fantasyland. In the POTUS’s desperate attempt to simplify his demand for remaking America’s health care system, he reverts to the proven Alinsky techniques of finding a demon, targeting that demon and isolating it to stir up public discontent.

His latest mantras have been focused on portraying those evil health insurers in the same light as Wall Street CEO’s.

Trouble is, facts get in the way of the rhetoric.

Per AP’s Calvin Woodward today, health insurers’ profits have barely exceeded 2% in the latest annual measures. With a traditional measure of a private enterprise’s financial health and growth potential generally hovering between 25-33% profit structure, one wonders how the heck they are surviving.

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.


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.

In a rare instance of calling out the WH and Congress on their exaggerations.. if not downright lies… Woodward examines the claims… and the facts.


_”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… ad.


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.

As I pointed out in my August 8th post about Obama’s IMAC proposed power panel factoring into the big picture of moving the nation to single payer health care, the private insurers make up for the care providers’ losses from government underpayment for Medicare/Medicaid services. As costs increase for the providers, and govt payouts remain low (and are slated to go even lower under O’care), the privately insured pick up the providers’ losses by being charged as much as 29% *over* base costs. As more of the nation is noodged/guided/forced into government health options, there are less private insurers capable of covering the cost/profit gap.

No one denies the costs are rising astromically. However it boggles the mind to pretend that any current legislation does something to curb costs. In fact, it merely redirects administration of the high cost of health insurance to the government. However this study is proof positive that the insurers … paying the brunt of under funded/soon to be bankrupt Medicare costs… are feeling the effects on their bottom line P&L sheets. It’s a wonder they haven’t increased premiums more than they have, and are surviving with just over 2% profits now.

Since the next likely counter from the WH may be a predictable “blame Bush” finger point, we might as well address that tangent as well. The Bush years were no boom times for the industry, whose “…overall profits grew only 8.8 percent from 2003 to 2008, and its margins year to year, from 2005 forward, never cracked 8 percent.” So much from moving the “evil insurers” target to “it’s all Bush’s fault”.

In the meantime, Jack Kelly at Real Clear Politics is highlighting Reid’s failures to sneak in legislation that hides the cost of O’healthcare by playing games with the plans to slash payments to Medicare doctors… a prime reason the CBO’s estimate of the ghost Baucus bill was in the magic number realm.

Democrats were heartened Oct. 7 when the Congressional Budget Office said the version of Obamacare drafted by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, would cost “only” $829 billion over 10 years. The CBO had scored versions proposed by the Health, Education, Labor and Pensions Committee and the leading House bill at more than $1 trillion.

Mr. Baucus achieved his apparent savings partly by omitting the “public option” dear to liberal hearts, partly by not covering all of the currently uninsured. But he achieved them mostly by front-loading tax increases and cuts in Medicare and Medicaid, but delaying most spending increases for two and a half years. Once the spending increases went into effect, they rapidly would overwhelm the “savings.” By the 11th year, the Baucus bill would add massively to the deficit.

There was a problem with this gimmick, though. Mr. Baucus proposed to save money in Medicare by gutting the Medicare Advantage program, in which 23 percent of seniors are enrolled, and by slashing the payments doctors and hospitals receive for treating Medicare patients.

Medicare currently reimburses doctors only 94 cents for each dollar of health-care services provided. To slash payments another 21.5 percent, as Mr. Baucus proposed, would not be popular with doctors. And if payments were slashed, many doctors who now treat Medicare patients would stop seeing them, which would not be popular with Medicare patients.

Naturally having this slash in reimbursement brings a plethora of repercussions… from the potential of even more doctors opting out of Medicare, to the inevitable reduction of Medicare benefits (most likely TBD by Obama’s separate legislation for the IMAC panel of health gods.)

To hide the genuine costs, Debbie Stabenow would introduce a separate bill that put a moratorium on the Medicare cuts for 10 years… after that, all bets being off. By hiding it as a separate bill, Reid figured he could claim the Baucus bill was still within Obama’s magic costs’ figure. Reid, however, did not count on the mutiny of 13 of his own…

To Mr. Reid, the solution was to offer the Stabenow measure as a separate bill and pretend it had nothing to do with the Obamacare plan. But last Wednesday, 13 Democrats joined all the Republicans in opposing this fiscal sleight of hand.

The defeat made Mr. Reid look like a putz. Majority leaders aren’t supposed to bring measures to the floor unless they have the votes, and he got beat bad. (Mr. Reid needed 60 votes to take up the Stabenow bill; he got 47.)

In defeat, Mr. Reid then acted like a putz. He blamed the loss on the failure of the American Medical Association to deliver Republican votes.

“Reid told colleagues that the AMA said it could deliver 27 Republican votes for the legislation, according to two Senate Democratic lawmakers, who spoke on condition of anonymity,” The Hill newspaper reported.

Even if that were true — the AMA says it isn’t — it’s not a very politic thing to say about a lobbying group whose help Mr. Reid will need to get Obamacare passed. (Only about 17 percent of physicians belong to the AMA, a fact which journalists who write about health care ought to note, but rarely do.)

Many Republicans do support giving doctors relief from Medicare reimbursement cuts. It’s the fiscal sleight of hand to which they object.

The defeat leaves Democrats between a rock and a hard place. They still must merge the Baucus bill with the much more expensive HELP version. The combined bill probably can’t be passed unless the Medicare reimbursement problem is fixed, but that problem can’t be fixed without making it plain that Obamacare will balloon the deficit.

See also David Broder’s WaPo op-ed on the same subject

The answer is still, of course, to keep the media and public distracted from actual nefarious goings on to hide the debt associated with their desired remaking of America’s health care. So the finger pointing, the isolation of evil insurers, and whatever other story they can get going to distract focus is apt to continue.

But in the case of the insurers, they have shot themselves in the foot with their own study of profit margins. This means Obama, Pelosi and Reid are in serious need of a new bad guy. Or else they will be quite busy, manipulating their media arms into burying the truth.


Posted on October 25, 2009, in Commentary, Socialized Health Care. Bookmark the permalink. Leave a comment.

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