PNHP

Is health insurers' profit 2% or 22%?

Is health insurers' profit 2% or 22%?

Health insurers’ profits 35th of 53

By Calvin Woodward
The Washington Post
October 26, 2009

Health insurance profit margins typically run about 6 percent, give or take a point or two.

Health insurers posted a 2.2 percent profit margin last year, placing them 35th of 53 industries on the Fortune 500 list. As is typical, other health sectors did much better – drugs and medical products and services were both in the top 10.

Leading the list: network and other communications equipment, at 20.4 percent.

http://www.washingtonpost.com/wp-dyn/content/article/2009/10/26/AR2009102600229.html

And…

Morningstar
October 26, 2009

Health care plans – net profit margin: 3.3%

http://biz.yahoo.com/ic/522.html

And…

American Medical News
August 24, 2009

Medical loss ratios of largest publicly traded health plans:
Average 85.2% (non-weighted, range 82.9% – 86.8%)

http://www.ama-assn.org/amednews/2009/08/24/bisb0824.htm

Comment:

By Don McCanne, MD

In simple accounting terms, profit represents the difference between gross revenues and the cost of producing and marketing the products or services sold. So what is the product that the private insurers are selling us? Administrative services.

Unlike most other businesses, the revenues of the private insurers include our own funds that essentially are held in trust for the eventual payment of medical claims – currently 85.2% as represented by their medical loss ratios. Their business costs relate strictly to their product – the administrative services – currently 14.8% of their revenues. Thus their profit margin, to make sense, should be calculated based on their business model of providing us administrative services, but not on the funds held in trust which involve negligible expenses but which provide them with long term investment income. (Profit statements for the notorious financial services industry should also be adjusted accordingly since that is also our money that they are jerking around.)

The 3.3% profit margin reported by Morningstar includes the funds held in trust, but if adjusted to include only all costs of their legitimate business operations of producing and marketing their administrative services then their profit margin is actually 22.3%. That moves them into first place on the Fortune 500 list of profitable firms, in front of the network and communications equipment industry (20.4% profit).

To be realistic, playing with these numbers does not change the fact that eliminating these profits would have only a very small direct impact on our total national health expenditures – saving less than 1% of our health care dollars. What would have a tremendous impact would be to eliminate an industry that has the incentive of a 22% profit margin on a product that is designed to reduce our access to the health care that we need, not to mention a product that places a costly administrative burden on our health care delivery system. Eliminating the private insurance industry could have a hugh direct impact on our health care spending – diverting perhaps $4 trillion over the next ten years from administrative waste, and redirecting it to patient care.

We need to take heed of this comment in today’s Los Angeles Times:

“As President Obama’s push for a healthcare overhaul moves toward its final act, the oft-vilified health insurance industry is on the verge of seeing a plan enacted that largely protects its financial interests.”

http://www.latimes.com/business/la-fi-health-insure26-2009oct26,0,11741,full.story

Is health insurers’ profit 2% or 22%?

Health insurers’ profits 35th of 53

By Calvin Woodward
The Washington Post
October 26, 2009

Health insurance profit margins typically run about 6 percent, give or take a point or two.

Health insurers posted a 2.2 percent profit margin last year, placing them 35th of 53 industries on the Fortune 500 list. As is typical, other health sectors did much better – drugs and medical products and services were both in the top 10.

Leading the list: network and other communications equipment, at 20.4 percent.

http://www.washingtonpost.com/wp-dyn/content/article/2009/10/26/AR2009102600229.html

And…

Morningstar
October 26, 2009

Health care plans – net profit margin: 3.3%

http://biz.yahoo.com/ic/522.html

And…

American Medical News
August 24, 2009

Medical loss ratios of largest publicly traded health plans:
Average 85.2% (non-weighted, range 82.9% – 86.8%)

http://www.ama-assn.org/amednews/2009/08/24/bisb0824.htm

Comment:

By Don McCanne, MD

In simple accounting terms, profit represents the difference between gross revenues and the cost of producing and marketing the products or services sold. So what is the product that the private insurers are selling us? Administrative services.

Unlike most other businesses, the revenues of the private insurers include our own funds that essentially are held in trust for the eventual payment of medical claims – currently 85.2% as represented by their medical loss ratios. Their business costs relate strictly to their product – the administrative services – currently 14.8% of their revenues. Thus their profit margin, to make sense, should be calculated based on their business model of providing us administrative services, but not on the funds held in trust which involve negligible expenses but which provide them with long term investment income. (Profit statements for the notorious financial services industry should also be adjusted accordingly since that is also our money that they are jerking around.)

The 3.3% profit margin reported by Morningstar includes the funds held in trust, but if adjusted to include only all costs of their legitimate business operations of producing and marketing their administrative services then their profit margin is actually 22.3%. That moves them into first place on the Fortune 500 list of profitable firms, in front of the network and communications equipment industry (20.4% profit).

To be realistic, playing with these numbers does not change the fact that eliminating these profits would have only a very small direct impact on our total national health expenditures – saving less than 1% of our health care dollars. What would have a tremendous impact would be to eliminate an industry that has the incentive of a 22% profit margin on a product that is designed to reduce our access to the health care that we need, not to mention a product that places a costly administrative burden on our health care delivery system. Eliminating the private insurance industry could have a hugh direct impact on our health care spending – diverting perhaps $4 trillion over the next ten years from administrative waste, and redirecting it to patient care.

We need to take heed of this comment in today’s Los Angeles Times:

“As President Obama’s push for a healthcare overhaul moves toward its final act, the oft-vilified health insurance industry is on the verge of seeing a plan enacted that largely protects its financial interests.”

http://www.latimes.com/business/la-fi-health-insure26-2009oct26,0,11741,full.story

Dr. Steffie Woolhandler on CSPAN

Dr. Steffie Woolhandler talked about a study she co-authored. According to the report, 62 percent of all bankruptcies are caused by illness and medical bills. Dr. Woolhandler also responded to telephone calls and electronic communications. Dr. Woolhandler participated by remote access from West Newton, Massachusetts. C-SPAN Radio’s Nancy Calo read news headlines at the end of the program.r talked about a study she co-authored. According to the report, 62 percent of all bankruptcies are caused by illness and medical bills. Dr. Woolhandler also responded to telephone calls and electronic communications. Dr. Woolhandler participated by remote access from West Newton, Massachusetts. C-SPAN Radio’s Nancy Calo read news headlines at the end of the program.

Kitzhaber on health care costs

Dr. John Kitzhaber’s Unorthodox Ideas On Reforming Health Care

By J. Duncan Moore Jr.
Kaiser Health News
October 21, 2009
Q. Why are you running for governor again?
A. Costs for health care are going to continue to escalate and states will be overwhelmed. Whatever comes out of Congress this year is not going to have much impact on overall costs.
Q. How do you feel about the reform effort in Congress?
A. I’m not optimistic. I think Washington, D.C., is really badly broken. The discussion today is not about health care, it’s about both parties trying to position themselves for future majorities.
http://www.kaiserhealthnews.org/Checking-In-With/checking-in-with-kitzhaber.aspx

And…

Evaluating Health Care Plans: An Analysis of the Short- and Long-Term Fiscal Implications of Reform Plans

US Budget Watch
(supported by Pew Charitable Trusts)
October 19, 2009
Unfortunately, each bill making its way through Congress has employed at least one of these gimmicks:
* Timing Gimmicks
* Loopholes
* Omissions
* Bogus Offsets
… many provisions within the bills… would result in increases of overall health care costs.
http://crfb.org/document/evaluating-health-care-plans

The five reform bills passed by House and Senate committees will not control health care costs, and yet these are to be merged into one bill – that will not control health care costs.
What is the worst that could happen?
The second worst is that the final bill could be defeated and everyone would walk away with yet another failed attempt at reform. (Everyone would understand that very soon we would have to return to start over since the status quo is totally unacceptable.)
The very worst is that this bill could pass and everyone would walk away insisting that we have successfully reformed health care when all we have done is to establish an unnecessary and unethical ten-year long experiment that will cause financial hardship, physical suffering and even death – adverse outcomes that could be prevented with reform based on policy evidence rather than markets.
The goal of completing action on this bill before Christmas, pass or fail, and then walking away is not acceptable. We must set this bill aside and start fresh with a model that would prevent yet another decade of unnecessary grief. That model, of course, is an improved Medicare for all.

Lack Of Insurance Compounds Chronic Disease Burden

By Joseph Shapiro
NPR
October 20, 2009

It’s dangerous enough to deal with a chronic illness like diabetes or cholesterol. But Americans who don’t have health insurance often have these conditions and don’t even know it.

Chronic health problems can lurk undetected for the uninsured.

The result is that the uninsured often don’t get the medical care they need to maintain their health, says a study just published online by the journal Health Affairs.

Researchers found that about half of all uninsured people who have diabetes (46 percent) or who have high cholesterol (52 percent) had no idea they had those diseases. By contrast, among the insured, only about a quarter were unaware when they had those chronic diseases (23 percent for diabetes; 30 percent for high cholesterol).

Dr. Andrew Wilper, who practices at a Boise, Idaho, clinic affiliated with the University of Washington and a co-author of the study, said there’s sometimes a misperception that even people without insurance get the care they need to manage chronic illness. “I’ve read in the media multiple times that the uninsured do, in fact, have access to health care,” says Wilper, “and I think that notion runs totally counter to my clinical experience and this data reflects the same.”

Wilper and his co-authors, looked at a federal data from the physical exams of sixteen thousand Americans, under the age of 65.

Among the study’s co-authors are two prominent advocates for a single-payer health care system: Dr. Steffie Woolhandler and Dr. David Himmelstein, both of whom teach at Harvard Medical School. Woolhandler said the “shocking” percentage of people with insurance who still go without discovery or treatment of chronic illness probably reflected high co-payments and deductibles that “often make care and medications unaffordable”. In a press release with the report, she argued, “only single-payer national health insurance would make care affordable for the tens of millions of Americans with chronic illness.”

An earlier study by the same researchers, published last month in the on line edition of the American Journal of Public Health, said that about 45,000 deaths a year can be attributed to a lack of health insurance–more than the deaths caused by kidney disease.

The government estimates 46 million people in America are without health insurance.

http://www.npr.org/blogs/health/2009/10/lack_of_insurance_compounds_ch.html

Doctor panel advocates Medicare-for-all legislation

By Patricia C. McCarter
Huntsville Times
October 21, 2009

HUNTSVILLE, AL — Asked how many people knew someone who had died because they couldn’t afford medical care, five of the 70 people at the Health Care is a Human Right physicians panel discussion stood up.

Asked how many knew someone who “suffered unnecessarily” for the same reason, almost everyone at the Tuesday night meeting at St. Bartley Primitive Baptist Church rose.

Huntsville pediatrician Pippa Abston, a leading voice for the all-volunteer North Alabama Healthcare for All, called those numbers “abominable.”

“These are real people,” said Abston, adding that 19 Alabamians die every week because they can’t afford care.

North Alabama Healthcare for All has sponsored other forums since national medical insurance became such a hot topic this summer, but this one was designed to focus on how people of color are impacted.

Dr. Celia Lloyd-Turney is medical director of the nonprofit Choice Medicine clinic in Toney and local chapter president of the National Medical Association, which is composed of African-American doctors. She said that poverty has caused blacks to get lesser medical treatment than other patients, and that her race tends to suffer more from diabetes, high pressure and kidney failure.

But even if all Americans had the same insurance, she said some doctors wouldn’t give blacks the same level of care because of prejudice.

Abston said Medicare-for-all couldn’t erase prejudice, but it would at least enable all people to get a doctor’s appointment. The pediatrician also agreed with a woman who commented that it would be hypocritical and morally wrong to leave out 13 million illegal immigrants.

The third doctor on the panel was Birmingham’s Wally Retan, state coordinator of Health Care for Everyone. He said most people who don’t approve of such an “incredibly simple” single-payer program distrust government, already like what they have, fear enormous tax increases or feel “better the devil you know than the devil you don’t.”

Regardless, he said he believed that reform could happen, and he even began a brief chant of “Yes, we can,” President Barack Obama’s campaign slogan.

The group endorses HR676, proposed by Democratic Congressman John Conyers of Michigan.

http://blog.al.com/breaking/2009/10/doctor_panel_advocates_medicar.html

Kitzhaber on health care costs

Dr. John Kitzhaber's Unorthodox Ideas On Reforming Health Care

By J. Duncan Moore Jr.
Kaiser Health News
October 21, 2009

Q. Why are you running for governor again?

A. Costs for health care are going to continue to escalate and states will be overwhelmed. Whatever comes out of Congress this year is not going to have much impact on overall costs.

Q. How do you feel about the reform effort in Congress?

A. I’m not optimistic. I think Washington, D.C., is really badly broken. The discussion today is not about health care, it’s about both parties trying to position themselves for future majorities.

http://www.kaiserhealthnews.org/Checking-In-With/checking-in-with-kitzhaber.aspx

And…

Evaluating Health Care Plans: An Analysis of the Short- and Long-Term Fiscal Implications of Reform Plans

US Budget Watch
(supported by Pew Charitable Trusts)
October 19, 2009

Unfortunately, each bill making its way through Congress has employed at least one of these gimmicks:

* Timing Gimmicks
* Loopholes
* Omissions
* Bogus Offsets

… many provisions within the bills… would result in increases of overall health care costs.

http://crfb.org/document/evaluating-health-care-plans

Comment:

By Don McCanne, MD

The five reform bills passed by House and Senate committees will not control health care costs, and yet these are to be merged into one bill – that will not control health care costs.

What is the worst that could happen?

The second worst is that the final bill could be defeated and everyone would walk away with yet another failed attempt at reform. (Everyone would understand that very soon we would have to return to start over since the status quo is totally unacceptable.)

The very worst is that this bill could pass and everyone would walk away insisting that we have successfully reformed health care when all we have done is to establish an unnecessary and unethical ten-year long experiment that will cause financial hardship, physical suffering and even death – adverse outcomes that could be prevented with reform based on policy evidence rather than markets.

The goal of completing action on this bill before Christmas, pass or fail, and then walking away is not acceptable. We must set this bill aside and start fresh with a model that would prevent yet another decade of unnecessary grief. That model, of course, is an improved Medicare for all.

Insurance promotes awareness and control of chronic disorders

Hypertension, Diabetes, And Elevated Cholesterol Among Insured And Uninsured U.S. Adults

by Andrew P. Wilper, Steffie Woolhandler, Karen E. Lasser, Danny McCormick, David H. Bor, and David U. Himmelstein
Health Affairs
October 20, 2009

Abstract: In this paper we explore whether uninsured Americans with three chronic conditions were less likely than the insured to be aware of their illness or to have it controlled. Among those with diabetes and elevated cholesterol, the uninsured were more often undiagnosed. Among hypertensives and people with elevated cholesterol, the uninsured more often had uncontrolled conditions. Undiagnosed and uncontrolled chronic illness, which is common among insured people, is even more frequent among the uninsured.
Unrecognized or undertreated disease places uninsured people at risk for costly, disabling, or even lethal complications. For instance, many cases of kidney failure, blindness, and amputation are preventable through good diabetes control. Hypertension control is the major strategy used to combat stroke.
For the uninsured, recognition of these three conditions lags behind that of people with health insurance. Insuring the uninsured may improve care and reduce rates of disabling complications and death for Americans with these chronic illnesses.
http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.6.w1151v1

This study confirms that being insured not only improves the control of chronic diseases, it also improves the diagnosis in individuals who are not even aware of their disorders. Insuring the uninsured can delay or even totally prevent the disastrous complications of these chronic disorders.
Current legislative proposals would leave perhaps tens of millions of individuals without insurance coverage. We cannot afford to complete the reform process until we establish policies that would cover absolutely everyone.
Our representatives in Congress need to halt the process now while they take another look at a single payer national health program – an improved Medicare for all – which actually would cover everyone. The House will have a chance to do so in the next few weeks when Rep. Anthony Weiner introduces his amendment on the House floor that would replace the language of the reform bill with the language of the single payer model.
Those who have not done so already may be interested in watching the seven minute video of Rep. Weiner’s statement when he previously introduced the single payer amendment in committee:
http://weiner.house.gov/tv.aspx?p=112

Chronic illnesses more often undiscovered, undertreated in uninsured

By Elizabeth Cooney
Boston Globe
October 20, 2009

Uninsured people are also more likely to have undiagnosed and undertreated medical conditions, according to a new study comparing chronic illnesses among Americans with and without health coverage. The results offer possible clues to a recently reported higher death rate among people who lack insurance.

Researchers from Cambridge Health Alliance and Boston Medical Center tracked diabetes, high blood pressure, and high cholesterol in a national survey of more than 15,000 working-age adults. Based on questionnaires, medical exams, and lab test results, they found that about half of uninsured people who had diabetes or high cholesterol were unaware of it, compared with just under one-quarter of insured people who did not know they had these conditions. High blood pressure, however, was undiagnosed in about a quarter of both uninsured and insured people.

Once diagnosed, hypertension was poorly controlled in 58 percent of uninsured people and 51 percent of those with insurance. The treatment gap was larger for high cholesterol: 77 percent of uninsured versus 60 percent of insured people had inadequately treated levels.

For diabetes control, the difference in treatment was not as clear. Insurance status did not matter in achieving good diabetes control, as defined by the national survey conducted by the US Centers for Disease Control and Prevention. But using less stringent measures that the authors say are more commonly used by physicians, 31 percent of uninsured diabetics were in poor control of their blood sugar levels, compared with 25 percent of insured diabetics.

“The diagnosis and control of chronic illness is substandard even in people with insurance,” Dr. Steffie Woolhandler, co-author of the article appearing online today in Health Affairs, said in an interview. “But it’s much, much worse for the uninsured.”

Woolhandler said the study results fit with research published last month linking 45,000 deaths each year to the lack of insurance. The same group wrote both articles.

“We know that you can prevent deaths through good treatments for high blood pressure, for diabetes, and for high cholesterol,” she said. “These common conditions are easily treated, but if you don’t treat them, they can turn lethal.”

Chronic conditions are diagnosed and treated through regular doctors’ visits and medication regimens, both of which can be out of reach for the uninsured, Woolhandler said.

The study’s conclusions are not surprising, according to Lindsey Tucker, Health Reform Policy Manager for the advocacy group Health Care For All.

“This paper demonstrates yet again the importance of having and retaining health insurance,” she said in an e-mail interview. “As we know from our policy work as well as from our HelpLine callers, uninsurance is costly not only for the individual but also for the state and the health care system.”

http://www.boston.com/news/health/blog/2009/10/post_33.html

Insurance promotes awareness and control of chronic disorders

Hypertension, Diabetes, And Elevated Cholesterol Among Insured And Uninsured U.S. Adults

by Andrew P. Wilper, Steffie Woolhandler, Karen E. Lasser, Danny McCormick, David H. Bor, and David U. Himmelstein
Health Affairs
October 20, 2009

Abstract: In this paper we explore whether uninsured Americans with three chronic conditions were less likely than the insured to be aware of their illness or to have it controlled. Among those with diabetes and elevated cholesterol, the uninsured were more often undiagnosed. Among hypertensives and people with elevated cholesterol, the uninsured more often had uncontrolled conditions. Undiagnosed and uncontrolled chronic illness, which is common among insured people, is even more frequent among the uninsured.

Unrecognized or undertreated disease places uninsured people at risk for costly, disabling, or even lethal complications. For instance, many cases of kidney failure, blindness, and amputation are preventable through good diabetes control. Hypertension control is the major strategy used to combat stroke.

For the uninsured, recognition of these three conditions lags behind that of people with health insurance. Insuring the uninsured may improve care and reduce rates of disabling complications and death for Americans with these chronic illnesses.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.6.w1151v1

Comment:

By Don McCanne, MD

This study confirms that being insured not only improves the control of chronic diseases, it also improves the diagnosis in individuals who are not even aware of their disorders. Insuring the uninsured can delay or even totally prevent the disastrous complications of these chronic disorders.

Current legislative proposals would leave perhaps tens of millions of individuals without insurance coverage. We cannot afford to complete the reform process until we establish policies that would cover absolutely everyone.

Our representatives in Congress need to halt the process now while they take another look at a single payer national health program – an improved Medicare for all – which actually would cover everyone. The House will have a chance to do so in the next few weeks when Rep. Anthony Weiner introduces his amendment on the House floor that would replace the language of the reform bill with the language of the single payer model.

Those who have not done so already may be interested in watching the seven minute video of Rep. Weiner’s statement when he previously introduced the single payer amendment in committee:
http://weiner.house.gov/tv.aspx?p=112