Health insurance company profits

[Tilted]

So, there's been a lot of vilification of health insurance companies recently. In the grand debate over the perceived high costs of health care, they've certainly taken a fair bit of the blame - not from everyone, but from many of the conversants. We've heard all kinds of rhetoric - that they have exploited the American people in pursuit of profits, that we need to reign them, and their profits, in, that some sort of non profit-driven mechanism needs to be implemented to cut out a big piece of the cost pie. Putting aside the reality that, systemically, such a mechanism couldn't reduce overall costs (without reducing quality or availability), and putting aside the reality that the fundamental nature of third party payer is problematic for pricing and quality (and is, in itself, the biggest part of the problem), and putting aside the likelihood that we would benefit from opening up the marketplace to more private health insurance competition (by removing interstate barriers), I was curious as to how big a piece of the health care costs pie was eaten up by health insurance company profits. I wondered how much profit these companies were actually making - and thus, how much the profit motive was costing Americans.

So, I decided to take a look into the profit situations of the health insurance companies. I wanted to find out for myself what the profit realities are for these companies - what their net margins are - not just rely on what someone else's, possibly agenda driven, report has to say. (As it turns out, I've come to realize that some of what has been asserted, with regard to health insurance company profits, is a complete fraud - disingenuous and intentionally misleading.) Now, health insurance is not an industry group(s) that I normally pay any attention to - in fact, I don't recollect ever having held or traded stock in any of the companies that fall within that industry - so I honesty wasn't sure what I would find. In doing this survey, I wanted to be as comprehensive, with regard to inclusion, as I could be, so as to not intentionally or unintentionally skew the results. I parsed the 10-K filings for 28 publicly-traded companies that fall within the SEC's classification as 'Accident and Health Insurance' or 'Hospital and Medical Service Plan'. They constitute essentially all of such companies that have continuing operations. This survey included all of the major players (e.g. UnitedHealth Group, WellPoint, Aetna, CIGNA, Humana, Coventry), and these companies represent well over $100 Billion worth of market cap.

The simple focus of my query - what was the aggregate net profit margin of those companies in 2008?

The answer: 3.05%

Only two of them (out of 28) had a net margin greater than 6%, and the only one that had a net margin greater than 8% was a very, very small player (.05% (1/2000th) of the total revenue of the group).

Then it occurred to me that 2008 had probably been a bad year for this industry, just as it had been for most industries and sectors. Wanting to get a fair representation of the situation, I went back and collected data from the 10-Ks for 2004-2007. Aggregate net profit margin for the companies in my survey:

2007: 5.67%
2006: 5.71%
2005: 6.01%
2004: 5.77%

For 2007, the total profit was $17.4 Billion, on revenues of $307.8 Billion. The companies are doing more business, but they aren't increasing their profit margins - health insurance company profits, on the whole, are not exploding. They aren't siphoning off bigger and bigger pieces of the pie to line their pockets and those of their shareholders. They just aren't. I didn't record specific numbers, but the government's share of the health insurance costs pie was probably close to $10 Billion, in itself, in 2007 (through corporate taxes on these companies).

5-6% net margin is not especially large. I'd guess it is in the middle of the range for all industries, maybe a little below average (though I'm not sure). There are lots and lots of industries that enjoy much higher margins, with many prominent ones in the 10-25% range. Point being, it is not a huge portion of the health care costs pie. And, the return on invested capital is probably about what it needs to be, for businesses of this nature, in order to attract the investment capital necessary to have a competitive, healthy marketplace (of course, that competitive marketplace probably needs to be legislatively opened up now).

Does my survey create a perfect representation of reality? No, but crude though it is, the methodology is good enough, and it is comprehensive enough, to give me a general, and I think fair, answer to the question I was interested in. The notion that health insurance company profits are excessive, or that they exploit Americans and drive up health care costs unnecessarily, is balderdash. If you want to be more technical, it's poppycock.

[ImnoMensa]

Originally Posted by Tilted

So, there's been a lot of vilification of health insurance companies recently. In the grand debate over the perceived high costs of health care, they've certainly taken a fair bit of the blame - not from everyone, but from many of the conversants. We've heard all kinds of rhetoric - that they have exploited the American people in pursuit of profits, that we need to reign them, and their profits, in, that some sort of non profit-driven mechanism needs to be implemented to cut out a big piece of the cost pie. Putting aside the reality that, systemically, such a mechanism couldn't reduce overall costs (without reducing quality or availability), and putting aside the reality that the fundamental nature of third party payer is problematic for pricing and quality (and is, in itself, the biggest part of the problem), and putting aside the likelihood that we would benefit from opening up the marketplace to more private health insurance competition (by removing interstate barriers), I was curious as to how big a piece of the health care costs pie was eaten up by health insurance company profits. I wondered how much profit these companies were actually making - and thus, how much the profit motive was costing Americans.

So, I decided to take a look into the profit situations of the health insurance companies. I wanted to find out for myself what the profit realities are for these companies - what their net margins are - not just rely on what someone else's, possibly agenda driven, report has to say. (As it turns out, I've come to realize that some of what has been asserted, with regard to health insurance company profits, is a complete fraud - disingenuous and intentionally misleading.) Now, health insurance is not an industry group(s) that I normally pay any attention to - in fact, I don't recollect ever having held or traded stock in any of the companies that fall within that industry - so I honesty wasn't sure what I would find. In doing this survey, I wanted to be as comprehensive, with regard to inclusion, as I could be, so as to not intentionally or unintentionally skew the results. I parsed the 10-K filings for 28 publicly-traded companies that fall within the SEC's classification as 'Accident and Health Insurance' or 'Hospital and Medical Service Plan'. They constitute essentially all of such companies that have continuing operations. This survey included all of the major players (e.g. UnitedHealth Group, WellPoint, Aetna, CIGNA, Humana, Coventry), and these companies represent well over $100 Billion worth of market cap.

The simple focus of my query - what was the aggregate net profit margin of those companies in 2008?

The answer: 3.05%

Only two of them (out of 28) had a net margin greater than 6%, and the only one that had a net margin greater than 8% was a very, very small player (.05% (1/2000th) of the total revenue of the group).

Then it occurred to me that 2008 had probably been a bad year for this industry, just as it had been for most industries and sectors. Wanting to get a fair representation of the situation, I went back and collected data from the 10-Ks for 2004-2007. Aggregate net profit margin for the companies in my survey:

2007: 5.67%
2006: 5.71%
2005: 6.01%
2004: 5.77%

For 2007, the total profit was $17.4 Billion, on revenues of $307.8 Billion. The companies are doing more business, but they aren't increasing their profit margins - health insurance company profits, on the whole, are not exploding. They aren't siphoning off bigger and bigger pieces of the pie to line their pockets and those of their shareholders. They just aren't. I didn't record specific numbers, but the government's share of the health insurance costs pie was probably close to $10 Billion, in itself, in 2007 (through corporate taxes on these companies).

5-6% net margin is not especially large. I'd guess it is in the middle of the range for all industries, maybe a little below average (though I'm not sure). There are lots and lots of industries that enjoy much higher margins, with many prominent ones in the 10-25% range. Point being, it is not a huge portion of the health care costs pie. And, the return on invested capital is probably about what it needs to be, for businesses of this nature, in order to attract the investment capital necessary to have a competitive, healthy marketplace (of course, that competitive marketplace probably needs to be legislatively opened up now).

Does my survey create a perfect representation of reality? No, but crude though it is, the methodology is good enough, and it is comprehensive enough, to give me a general, and I think fair, answer to the question I was interested in. The notion that health insurance company profits are excessive, or that they exploit Americans and drive up health care costs unnecessarily, is balderdash. If you want to be more technical, it's poppycock.

The notion that health insurance company profits are excessive, or that they exploit Americans and drive up health care costs unnecessarily, is balderdash. If you want to be more technical, it's poppycock.[/quote]

No it's just another lie told by the biggest Bullsh!t artist to ever hit America by way of Kenya.

[-SS-]

Great post.

Mind posting your methodology? Walk us through it.

[chernmax (Premo)]

How about oil speculation reform:

Exxon Mobil: Biggest profit in history
The largest U.S. oil company surges past analysts' estimates with a posted net income of $14.83 billion and sets a national record for quarterly profit.

The company said its revenue totaled $137.7 billion in the third quarter.

Exxon breaks record for profit, yet again - Oct. 30, 2008

[MMDad (Premo)]

Originally Posted by -SS-

Great post.

Mind posting your methodology? Walk us through it.

Profit is required by law to be reported. It's all readily available in annual reports and on any stock quote reporting site.

[Tilted]

Originally Posted by -SS-

Great post.

Mind posting your methodology? Walk us through it.

It was pretty straight forward - the only real question was what companies to use for the survey. In order to pick the companies to be used, I referred to the SEC's sector and industry listings. I selected all companies classified as 'Accident and Health Insurance' and 'Hospital and Medical Service Plan' (those are the ones that would be most appropriate). I excluded any companies that didn't have a 10-K filed for 2008 (generally, those that had gone out of business or had merged into one of the others). To be sure that I had covered the bulk of the relevant companies, I used a sector/industry screener from one of my broker accounts to create a list of companies that it placed within the A&HI Industry.

For the ones that were included on that list, but not on either of the SEC's, I looked at the description of their business and a breakdown of their revenue sources (from their most recent 10-K filing) to confirm that it made sense that they were classified as other kinds of businesses by the SEC (e.g. fire and marine, life insurance). Not finding clear reason to be convinced that they should be included, I deferred to the SEC's classification. So, the criteria for inclusion may not have been perfectly crafted, but the important thing is that it wasn't arbitrary (or manipulated to achieve a desired result). I made an earnest effort to create a comprehensive list, and not cherry pick companies.

Once I had selected the companies to be used in the survey, it was just simple data collection. I pulled up the 2008 10-K filings for each one (for some I had to pull up multiple 10-Ks). From those I collected the total revenues and net earnings (post tax, but pre preferred stock distributions) for each year from 2004-2008. I plugged them into a database and got the net margins (aka net profit margins) for each company, as well as the aggregate net margin for the group.

[itsbob (Premo)]

Originally Posted by chernmax

How about oil speculation reform:

Exxon Mobil: Biggest profit in history
The largest U.S. oil company surges past analysts' estimates with a posted net income of $14.83 billion and sets a national record for quarterly profit.

The company said its revenue totaled $137.7 billion in the third quarter.

Exxon breaks record for profit, yet again - Oct. 30, 2008

I was going to bring this up..

If ANYONE in the US thinks a company is making HUGE profits, you can jump right out there and invest YOUR money into that same company and get rich off hte HUGE profits they supposedly make.. but what's funny is EVERY person #####ing about how much they make in profit, not ONE of them ever thought to invest in it, and that includes Oil and Health Insurance..

You'll NEVER hear a democrat spout percentage of net profit. You'll never hear them say ANYTHING about percentages.. they like BIG numbers.. Like "OMG, EXXON made $1,000,000,000 in profits over the last three years." Then you look at the books and realize.. no, not really, yes you can extract that HUGE number out of the books, but in reality when you figure out how much they paid out, what their expenses were, that $1,000,000,000 actually translates to less than 5% profit.

NOT a good investment. Not a huge profit by any stretch of the imagination.. but 2.5% profit just doesn't alarm Americans like one TRILLION in profits..

HEY if you think they are doing that great YOU invest all Your money in it.

[-SS-]

Originally Posted by Tilted

It was pretty straight forward - the only real question was what companies to use for the survey. In order to pick the companies to be used, I referred to the SEC's sector and industry listings. I selected all companies classified as 'Accident and Health Insurance' and 'Hospital and Medical Service Plan' (those are the ones that would be most appropriate). I excluded any companies that didn't have a 10-K filed for 2008 (generally, those that had gone out of business or had merged into one of the others). To be sure that I had covered the bulk of the relevant companies, I used a sector/industry screener from one of my broker accounts to create a list of companies that it placed within the A&HI Industry.

For the ones that were included on that list, but not on either of the SEC's, I looked at the description of their business and a breakdown of their revenue sources (from their most recent 10-K filing) to confirm that it made sense that they were classified as other kinds of businesses by the SEC (e.g. fire and marine, life insurance). Not finding clear reason to be convinced that they should be included, I deferred to the SEC's classification. So, the criteria for inclusion may not have been perfectly crafted, but the important thing is that it wasn't arbitrary (or manipulated to achieve a desired result). I made an earnest effort to create a comprehensive list, and not cherry pick companies.

Once I had selected the companies to be used in the survey, it was just simple data collection. I pulled up the 2008 10-K filings for each one (for some I had to pull up multiple 10-Ks). From those I collected the total revenues and net earnings (post tax, but pre preferred stock distributions) for each year from 2004-2008. I plugged them into a database and got the net margins (aka net profit margins) for each company, as well as the aggregate net margin for the group.

Outstanding! Thank you.

Mind if I steal this? No, I'm not publishing it for a book or anything.

[itsbob (Premo)]

Originally Posted by -SS-

Outstanding! Thank you.

Mind if I steal this? No, I'm not publishing it for a book or anything.

Karl Rove was on TV last night explaing how they are going to do health care with no deficit spending for the first year at least..

EYE OPENING:

The health care act doesn't become law until 2015 (I thought it was 2012, but he said 2015) BUT the fund raising, the extra taxes, the cuts in medicare and medicaid benefits start the day the bill is signed. BILLIONS saved in Medicare cuts the first year..

They get SEVEN years to raise tax revenue, and cut enough benefits to pay for the first year of required gov't health care.. ON paper it looks like it's free, and just as required the first year of health care is free of deficit spending.

The question therein .. If it takes SEVEN years to ensure the first year or two are deficit free, what happens in year three four or five when we have to pay for them as we go, day by day, year by year?

[bcp (Premo)]

Originally Posted by itsbob

Karl Rove was on TV last night explaing how they are going to do health care with no deficit spending for the first year at least..

EYE OPENING:

The health care act doesn't become law until 2015 (I thought it was 2012, but he said 2015) BUT the fund raising, the extra taxes, the cuts in medicare and medicaid benefits start the day the bill is signed. BILLIONS saved in Medicare cuts the first year..

They get SEVEN years to raise tax revenue, and cut enough benefits to pay for the first year of required gov't health care.. ON paper it looks like it's free, and just as required the first year of health care is free of deficit spending.

The question therein .. If it takes SEVEN years to ensure the first year or two are deficit free, what happens in year three four or five when we have to pay for them as we go, day by day, year by year?

doesnt matter to the magic one. By extending the start date to a time that he will be out of office, he also extends the blame for mis-management.
thus, when it fails, and it will, he can point and say, what I had would have worked, what He (whoever gets stuck) did caused it to fail.

see? he keeps his promise, but get out of all blame for what it brings.