Archive for Monday, October 26, 2009

Health insurer profits turn out smaller than Hershey’s, around 6%

October 26, 2009


— 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.

Targeted insurers

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 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.


SettingTheRecordStraight 8 years, 7 months ago

That's funny. Julie Rovner (the new worst at NPR) didn't report this during her latest infomercial for government health care on this morning's Morning Edition.

SettingTheRecordStraight 8 years, 7 months ago

Of course it's profitable, beerguy. And the insurance industry's profit motive is no worse than that of the local baker, plumber or dentist.

It's just fascinating that this one industry has been singled out for doing what we hope every corporation will do - make money.

Flap Doodle 8 years, 7 months ago

If the drug companies hadn't cut a deal with Axelrod's puppet, we'd be hearing horror stories about them on every talk show. The Chicago Way is thriving in the swamp of DC politics.

parrothead8 8 years, 7 months ago

2.2% of what? What's the dollar figure? I'm guessing a 2.2% profit for health insurance companies is still quite a bit more than a 4% profit for Jack in the Box.

Welcome to America, where you have the inalienable rights to life, liberty, and the pursuit of happiness, as long as they don't get in the way of anyone's profit margin.

oldvet 8 years, 7 months ago

"Welcome to America, where you have the inalienable rights to life, liberty, and the pursuit of happiness, as long as they don't get in the way of anyone's profit margin."

Welcome to America, where you have the inalienable rights to life, liberty, and the pursuit of happiness, and you can make all the money you want to, as long as you are willing to get off your rear off of the lazyboy and work for it in something other than a gubment job...

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