Health Care Insurance Reform, Health Insurance Reform, Single Payer Option, Government Sponsored Health Care, Health Insurance Company Profitability
NOTE TO SUBSCRIBERS. This article is republished to correct an error. The number of insurance companies in the United States is 1,300.
Zinger will publish this weeks article on Friday August 28.
____________________________________________________________________________
Friday August 20, 2009
Special Weekend Edition
Summer Schedule
Today’s Zinger:
There Is A Fine Line Between Marketing and Manipulation
Who Said It?
“We must adjust to changing times and still hold to unchanging principles.”
The Morning Briefing:
With the Canadian health care system near implosion, the French system's entitlement and costs spiraling out of control and Britain's waiting list growing, government run health care may provide some early year benefits but over time it fails to retain its advantages, just like programs for Medicare, Medicaid and Social Security have done. The Obama administration continues to say that the public option is there only to promote competition. If that is true, please tell me what the other 1,300 insurance companies in the United States are doing?
The administration has changed its focus of reform to reform of health care insurance. Since insurance companies only earn a 4% average profit margin and primarily control only 15% of premium revenue(administration), there is no way that the administration can significantly improve the cost of health care by creating a government entity. Their government's primary advantages include: no taxes, no cost of capital and no shareholder returns, the elements of private enterprise. To reduce actual medical costs, a government run system must push down reimbursements paid to providers or eliminate redundancy and abuse.
In a system that will increase the number of covered Americans without an increase in the supply of doctors and facilities, the law of supply and demand dictates that prices will rise or services will be reduced or rationed. The government cannot afford to allow prices to rise, they must reduce costs and to reduce costs implies eliminating redundancy and abuse (believed to be 10-15% of total cost) or ration care.
The following chart highlights primary areas of expense for health insurance companies.
The best way to improve the cost of health care is through open markets. Providers should compete on a price and quality basis for the consumer’s dollars and consumers need to be incented to save through a tax formula that produces long term savings versus health care expenses.
The government needs to become more involved in establishing better rules of the game, like portability of benefits when changing jobs or elimination of pre-existing conditions, cross state sale of insurance policies and tort reform to reduce defensive medicine and build the health information network.
In the short term, the government option to health care is a Trojan horse that will lead to crowding out of private carriers as businesses opt out of private care to take advantage of lower priced care. The lower priced care is the result of government not having to pay taxes, capital costs or profits, which is one of the reasons why the constitution precludes the government from competing with private industry. Over time the government inefficiencies will creep in and it will lead to higher costs, reduced advances in medicine and the government becoming more involved in health care decision making.
The Facts:
- There are 1,300 insurance companies in the United States.
- 60% of the U.S. insurance companies are non-profit.
- The average profit margin in the health insurance industry is similar to that of the average publicly traded company on the NY Stock Exchange.
- Health insurance companies pay 15% of premium revenue for administration, taxes and profits while 85% of premium revenue pays providers for patient services rendered.
The Discussion:
The Obama administration says that we need a public option to current health insurance to improve competition. How many companies does it take to create competition? According to President Obama, if the US Government is not involved then there cannot be fair competition in health care insurance and the insurance companies cannot be trusted to manage health care costs.
The Obama administration has used the strategy of demonization to create a common enemy that cannot fightback. During the campaign in 2008, the Democrats and the Obama administration targeted wealthy individuals (the top 5% of wage earners) as greedy and should spend more of their lofty gains to support those less fortunate. The administration proposed popular programs for the masses to be paid by "1% of the population". They targeted big oil for unreasonable profits and said they were taking advantage of the American consumer. They targeted big Pharma for unreasonable profits in health care, however, now that Pharmaceutical companies have cut a deal with the government to exclude Medicare drugs from future cost cutting, the administration is looking more favorably on pharmaceutical companies. With a failing health care reform bill, the administration now targets health insurance companies for the mess in health care and therefore we need health insurance reform.
The insurance companies are not the source of high health care profits, so why does the Obama administration feel that we need to establish greater competition in health insurance to take charge of the future costs of health care? Of the total cost structure of the health insurance industry, 15% goes to administration and 85% goes to reimbursement of providers for health care. The only way that the government can address the real cost, the 85%, is to “manage” the reimbursement of providers (hospitals, pharmaceutical companies,medical devices, etc). That can only be done by forcing lower reimbursement to providers, eliminating procedures or rationing care, which is the administration core objective.
Health insurance companies produce profit margins similar to the average DOW industrial company. Compare this to the profits of such companies as Disney, Google, Microsoft, oil companies, energy companies, etc. The health insurance industry is not the source of unreasonable profits or the driver of health care costs. The following table compares the profit margin of health insurance companies to other major corporations as well as other health services companies.
Profit as a percent of Revenue
| Company | 2006 | 2007 | 2008 |
| Health Insurance Companies | | | |
| United Health Group | 5.8 | 6.2 | 3.7 |
| Wellpoint | 5.4 | 5.5 | 4.1 |
| Aetna | 6.8 | 6.6 | 4.5 |
| Cigna | 7 | 6.3 | 1.5 |
| Humana | 2.3 | 3.3 | 2.2 |
| | | | |
| Average DOW Company Profit | | 4.0 | |
| | | | |
| Comparative Companies | | | |
| Microsoft | | | 24.9 |
| Disney | | | 9.6 |
| Google | | | 20.6 |
| Waste Management | | | 7.9 |
| Duke energy | | | 8.6 |
| | | | |
| Health Services Companies | | | |
| Abbott Labs | | | 17.5 |
| Astra Zeneca | | | 21.7 |
| Pfizer | | | 16.2 |
| Medtronic | | | 14.9 |
| American Medical Systems | | | 10.8 |
| St. Jude Medical | | | 9.2 |
| Medical Facilities Corp | | | 20.8 |
| Universal Health Services | | | 5.0 |
| WellQuest | | | -11.4 |
| | | | |
| | | | |
| Oil Companies | | | |
| Chevron | | | 8.2 |
| Exxon | | | 8.7 |
| BP | | | 4.4 |
| Petrochina | | | 11.3 |
The Obama administration sees the current condition as the best possible chance to implement health care reform. In the past year, they have migrated the marketing of the program from universal health care, to health care reform to a cost reduction program and now health insurance reform. As the opposition to one program increases, the administration overlays a new title and agenda for the bill.
There is no question that America must undertake health care reform due to rapidly increasing costs and an aging population, however this can be done through a competitive marketplace, open pricing, tort reform, a health information network and patient incentives. Leaving the door ajar for the government to enter this market will ultimately lead to (in one or two generations) government run health care.
The administration is in a difficult political position. The support from Liberal Democrats is under attack because the current version of the bill does not include a single payer system. The more conservative, Blue Dog Democrats, will not support a bill with a single payer option. The administration blames the difficulties of passing the bill on the Republicans. The truth is, the Democratic Party must first reconcile their agenda since they have the overwhelming majority in the House and Senate and can pass any bill that they can align their own party around. Although, that would be political suicide since the majority of Americans do not support the bill and the politicians will have to vote against many of their own constituents who will undoubtedly remember this cram-down come election time.
Who Said It?
Jimmy Carter
“We must adjust to changing times and still hold to unchanging principles.”
Today’s ZingerToon:
Recent ZingerKing Articles:
Articles can be found under “Recent Articles” in the purple sidebar. Click on the title of the article that you would like to see. Older articles can be found in the archives that are stored by month. These are found at the bottom of the purple sidebar.
Zinger’s Alternative for Health Care Reform
Cash for Clunkers and Economic Recovery
Unintended Consequences of Universal Health Care
Stimulus II
The Revolving Door of Politics: Franken, Palin, Biden
Consequences of Taxing the Wealthy
Obama's Clintonesque Moment
Overcoming Bias: Challenging Our Own Beliefs
Health Care Just Made Me Sicker
Health Care Makes Me Sick
Social Conservatives: Avoiding the Extremes
Obama's Speech To The Muslim World
Bubble Economics, The Energy Bubble
If the profits aren't in the insurance companies, where are the large profits coming from?
If the providers (hosptials, doctors, etc) are making the money then the government can use its buying power to force lower costs and this is something the insurance companies are not doing well.
Reply to this