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.
