• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Junk Economics: A Closer Look at Those Shocking Health Insurance Profits

    The advocacy group Health Care for America Now (HCAN) has released yet another report decrying what they claim are “huge profit gains” by the five largest for-profit health insurance companies for the first three months of 31%.  Shocking?  Well, one thing the report glosses over is, “31% of what?”  The answer:  31% of the profit for first three months of the previous year, which is a (shocking?) $2,415.9 million for the five companies put together.

    What they don’t tell you – but which you can figure out with a little arithmetic from the numbers in their report – is how much profit the companies made off of each of their insured members.  As of March 31, 2010, the five companies put together had a total of 85.6 million members – and that translates to a quarterly profit of $37.06 per member.  Is that shocking?

    At an annualized rate – that is, assuming they make the same quarterly profit for the rest of the year, that works out to $148.25 per member for 2010 – or less than 1% of the average family health insurance premium.  In other words, if health insurance companies decided to stiff their investors and use the proceeds to reduce premiums, the average family health insurance premium (almost $13,000 for 2009) would drop by less than $150.

    So where did HCAN get the huge growth rate from?  Well, they reported the profit not as a percentage of the premiums, or as a percentage of assets – but as a percentage of the previous year’s profits.  In fact, if we look back to 2008, we find that the profit was $88.10 per member.  This works out to an annualized growth rate of 30% from 2008 to 2010.

    The huge percentages come about when small numbers change – in other words, the percent changes are big because the underlying profit numbers per member are small, not large.  The HCAN numbers are technically correct, but utterly meaningless.  Indeed, one ranking shows that when profit is expressed as a percent of revenue, health care plans are the 86th most profitable industry – far behind hospitals, for example.

    (HT: Mark Perry)

    Posted in Obamacare [slideshow_deploy]

    5 Responses to Junk Economics: A Closer Look at Those Shocking Health Insurance Profits

    1. West Texan says:

      You know the old saying "Half a truth is as good as a lie". Selective data can be so easily manipulated to support one's ideological fantasies. Regardless of how the numbers are thrown around, however, congressional democrats and Obama have far exceeded their constitutional limits by their intrusion into states' business and private industry. It's just more sanctioned political corruption at the federal level. Where's the SCOTUS when you need them most!

    2. Billie says:

      Well put, West and of course, Heritage.

      …somebody has to stop media from defining skin colors, pertaining to polls. Any poll can reflect any skin color, to publically state "whites" voted this way or that is not accurate, anyone can be any color they want when they poll on their private time and publically stating a specific "skin color" only builds resentment. Why would the government want to intentionally support that? As we are all Americans, skin color need not be specified.

    3. Billie says:

      This is based on deception. Compliments of the government. Was misleading in proposal. Government. Way off the mark in what the president PROMISED America! There is NOTHING TO TRUST REGARDING THIS UGLINESS. What benefit?

      Free markets work and holds accountable. People are left with their freedoms of choice pertaining to their personal health without the government dictate and doctors aren't under government influence. I call it a UGI. Get government out!

    4. Pingback: Breaking It Down – Blog Watch

    5. Pingback: Breaking It Down | Go HealthReform

    6. Pingback: Breaking It Down | Kaiser Permanente Health Insurance Help

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.