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Insurance Industry Claims Low Profits, High Expenditures on Medical Care

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America’s Health Insurance Plans (AHIP), the lobbying arm of the insurance industry, claims that “for every dollar spent on health care in America, approximately 1 penny goes to health plans’ profits.” Moreover, the group’s health care reform website alleges that only one one-hundredth of the premium dollar is revenue for the insurance provider, with the going towards providing medical care for insurance holders.

AHIP numbers seem to indicate that insurance companies are making very little in profits and spending a lot on providing coverage for their customers. However, the data fails to clearly explain that insurers are measuring their profits against total health care spending in the U.S., not in comparison to insurance company revenue. In other words, according to health care economist Uwe Reinhardt: “[a]ll that statement says is, if you eliminated all our [insurance company profits], national health spending in America would be 1 percent lower.” AHIP numbers only have meaning within that context—otherwise, within the context of actual insurance companies’ revenues, insurers skim between 15-20% of premium dollars to pay for administrative costs and profits. Moreover, even more alarming is the fact that within the last 10 years, insurers have been spending less (from plan premiums that their customers pay) on medical care and more on administrative costs and profits. Indeed, a report by Families USA found that some insurers maintain a ratio of 60% on medical payouts to 40% for administration, marketing and profit. You may think there is nothing wrong with that payout to profit ratio. However, that figure represents a two to ten percent difference from what AHIP claims insurance companies make in profits.

If the above data is not enough to convince you that health insurance companies are not looking out for the average consumer, here are a few additional facts that demonstrate that the insurance industry is more interested in profits than anything else:

The top five earning insurance companies averaged profits of $1.56 billion in 2008, with more than 18% of those earnings going towards revenue, administration and profits. Furthermore, CEO compensation for those same companies ranged from $3 million to $24 million. That’s actually a decrease in CEO compensation from previous years—a survey by Modern Healthcare failed to find one healthcare CEO who earned more than $15 million last year. But don’t get too disappointed for the CEOs lowered earnings just yet—the performance of the stock market in 2008 was a major factor for the decrease in compensation, not because they aren’t still skimming a hefty amount off their customers’ premium payments. Too top it all off, there is sturdy proof that insurance companies are willing to shell out the major bucks when it comes to a cause they truly feel worthy of their “hard-earned” dollars: health-care firms and their lobbyists are spending money at a rate of $1.4 million a day to campaign against the public healthcare legislation currently moving through congress.

2 Comments

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  1. Mike Bryant says:
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    Unbelievable, but something has to pay for all of the shoutouts and fox “news” misinformation. We need to keep getting the truth out.

  2. treetracker says:
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    It is beyond me why there are so many Americans hung up on their ideology or have so little interest in researching the information to find the truth. I’ve read all these bills, with the exception of Wyden/Bennett, and other than HR 676, they are so compromised they are nothing but sell outs to the insurance industry, who are going to do nothing except make more profit off the backs of the sick and healthy who will be paying them premiums just to shuffle paper. What an incredible waste of resources that could be spent in other ways! Our economy may or may not be recovering depending on which talking head you listen to, but if we had 20-30% of the profit that these companies put in their own pockets, we’d each have more money to spend on what WE want to spend it on. Right now we’re giving the insurance industry and PhRMA that money and paying taxes (both state and federal) that are being directed to cover the uninsured, as well as Medicaid and SCHIP programs. By pulling all these plans together into single payer (HR676), we could take Medicaid and SCHIP off the backs of state government, and get our employers out of the health care business where they can change our plans or drop our coverage at their own choosing.

    And in the bargain, we get to pay less! An economist, Dean Baker, reviewed HR 676 and concluded our premiums could be reduce to $2700 from $7600 (family of 4) annually. Now that’s a deal I’d like to take advantage of! And with no co-pays or deductibles to have to scrape together before we go see a doctor. Plus the plan includes vision and dental which many employers don’t provide.

    Americans are always looking for the best deal out there, yet when it comes to this they are letting our bought and paid for politicians make this choice for us – one in which a good percentage of them do not have our interests at heart, but rather their own campaign coffers.

    When will Americans learn that politicians do not have our best interests at heart? They promise the moon during the campaign to get our votes, then screw us over for the money so they can run again and we’re dumb enough to re-elect them time after time!

    What a sad and gullible lot we are. I guess we deserve what we get when our civic responsibility to be informed is less important than watching some fake reality based TV program. Kate and John are just SO MUCH more important than the health and economy of our country! We’ll just put our trust in the corrupt political system and let them tell us what is best for us.

    It must be fun being played for a fool, since so many of us are so good at it.