AP finally reports on insurance industry’s thin margins

While Democrats in Congress have spent months demonizing insurers as greedy villainous monsters, from Barack Obama to Nancy Pelosi to Alan Grayson, the American media stood mute rather than report on the extent of this supposed greed. Why? It’s not as if these companies don’t have annual reports, or that business media haven’t tracked their performance. The publicly-traded companies have their bottom lines exposed for all to see, and yet the media has steadfastly whistled and looked askance rather than inform people about the extent of their demonic, villainous, greedy, filthy lucre.

The AP finally got around to it today … on a Sunday, where it’s likely to be buried:

Quick quiz: What do these enterprises have in common? Farm and construction machinery, Tupperware, the railroads, Hershey sweets, Yum food brands and Yahoo? Answer: They’re all more profitable than the health insurance industry. In the health care debate, Democrats and their allies have gone after insurance companies as rapacious profiteers making “immoral” and “obscene” returns while “the bodies pile up.”

Ledgers tell a different reality. Health insurance profit margins typically run about 6 percent, give or take a point or two. That’s anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.

“That’s anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.”

Bull. Look at the CMS hired insurance companies that are MANDATED to profit at 7% while administering the MediCare and DMERC companies and I will show you an insurance company awash in cash AND profit.

Go to ANY state, look for an insurance company built or occupied skyscraper and I will show you a MediCare administrator either present or immediate past eg. TransAmerica building San Francisco

“Ledgers tell a different reality. Health insurance profit margins typically run about 6 percent, give or take a point or two.”

I think the form of statement that best expresses the impact of that fact, is when we remind people of what it means, which is:

after all costs, including taxes, they get to keep a whole six cents from each dollar of revenue.

So many Health Insurance Companies are as big as they are precisely because sometimes volume of revenue is the only antidote against insolvency in the bad years, when you’re only getting six cents on the dollar. Smaller firms often cannot compete on that profit margin level, because they have less cushion against the risks they are taking (that claims will be higher than anticipated).

“Unless I’m confused, they still have to pay income tax on this “profit.”

I don’t think so. Usually most “net earnings” and “profit” statements in financial news reports are after taxes.

But, don’t think that minimizes the 6%. If they pay taxes on the order of like the oil industry does, their “huge” profits (in terms of the dollar amount, as opposed to the %) are far exceeded by the taxes they have paid. Uncle Sam takes more of their revenue than the net revenue they get to keep.

While, in many cases it’s both a yes and a no!

Most states regulate what “monoply insurers, like Blue Cross” can recieve as profits on their investment.

So the insurers, like other regulated utilities, like to have a high investment base, so they can then justify an adequate return on this investment base.

This leads to requesting higher premiums, or utility rates, on the inflated investment base.

And as the required cash reserves that all insurance companies must maintain - are part of the investment base. As the Fed lowers target interest rates, the return on the cash reserves - a large component of insurance profits - dries up, which then allows the insurancee company to justify higher premiums.

As premiums rise, the company generates more free cash flow to either invest or to reward key employees, or to lobby, etc.

So the metric of low profits per unit of revenue becomes a key goal of the insurance industry, as the lower return on revenue, will trigger future rate increases under regulatory approval, for more unnecessary investment, to repeat the previous cycle.

Think about it. How many insurance companies are housed in shabby facilities? How many pieces of mail do you receive from them monthly - one for every claim, policy update - all totally unnecessary. Send out one summary a month, or use our e-mail - but the insurance company has little incentive to save $1.00 per mailed page, as the cost savings would improve their bottom line - hurting their request for premium rate increases.

It’s bad now, think of the absolute disaster it will be if the government takes over healthcare, especially with SEIU members in each office!

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