Thanks but that isn't what I was asking about. Rapunzel said that health insurance companies could make a "more modest level of profits" as opposed to the pirate money of the last decade.
No matter, I looked it up myself. Health insurance companies make just over 3% profit margin.
Health Care Plans Overview: Industry Center - Yahoo! Finance
Fairly modest. In fact, it comes out 86th on the list of profit margin by industry.
Industry Browser - Yahoo! Finance - Full Industry List
I think you misunderstood my point about a more modest level of profits -- I meant that is the case in an administrative services only (ASO), versus a fully insured group policy. That is why most large companies of 500+ employees opt not to be insured but instead take the risk and pay the total claim amount plus an ASO fee -- it's much cheaper. The insured lines of business generate huge profits which vary from market to market (depending on the amount of competition) and according to group size. Small groups of 20 to 200 lives are referred to as the "sweet spot" in the industry because those groups are generally too small to self-insure, and therefore generate the highest profit margins.
I find the 3% figure laughable, and it flies in the face of both my personal experience working for health insurance companies, and every industry publication I've seen. You're Yahoo! Finance link isn't working for me and I don't see the article to address it's source, but I'm willing to bet is was a press release from an industry lobby group.
Company 2000 Profits 2007 Profits Profit Growth
Aetna $127 M $1,831 M 1,342%
UnitedHealth $736 M $4,654 M 532%
WellPoint $226 M $3,345 M 1,380%
Source: U.S. Securities and Exchange Commission filings. The companies are listed in the Corporate Library?s ?Insurance Health and Disability? category.
The 3-4% figure would have been the kind of profits being generated by BCBS of Georgia when it was operating as a not for profit c. 1996. The profits formula is basically premiums minus overhead costs and amount of paid claims = profit. In 1998, BCBSGA was purchased by Wellpoint (originally Blue Cross of California, they've bought up a huge percentage of of the BCBS affiliates since the restrictions on selling insurance across state lines were ended during the Reagan administration) and reimbursements to providers immediately went down and premiums began to rise out of all proportion to provider contracts which had been the previous driver of premium increases. If you look at the data on the three companies above (chosen because I've worked for each) you'll see that their profits have increased 500% to 1300% in seven years. The only way that would be possible in the underwriting model and the 3% could possibly be true is if every healthcare provider -- every doctor, every hospital, every drug company and pharmacy -- had seen the same level of increase in profits over the same seven year span. Trust me, that is not the case.
Huge profits would not bother me if not for two things -- First, access to healthcare is not a commodity like pork bellies, it is just not something you can say has a limited supply and access is dependent upon demand and some people simply cannot have any. Second, the industry does not function according to market rules and forces. It is not a consumer driven industry, and it uses it's lobbying arm and position as administrator of a huge government program (Medicare) to further dilute it's need to compete. As an example, the industry created a concept called bundling codes so that certain procedures couldn't be reimbursed within the same encounter, then lobbied to write the bundling into Medicare policy by saying that it would save the government lot of money by making it possible to automate claims processing, and then proceeded to deny claims that weren't normally performed together or were performed bilaterally -- resulting in consumers and contracted providers having to fight to have thousands of claims processed correctly.
And yes, Medicare is processed through third parties. BCBSGA handles processing for Georgia, BCBS of Arkansas paid Medicare claims in Louisiana. The secondary payor varies from state to state, but there is no big Medicare claims processing center full of government employees in Washington. There are many versions of many bills regarding the public option, and I don't claim to have read them all. The plans I have read don't even address who would process the claims specifically, I'm sure that would be left to HHS to contract out. It's cheaper for them to piggyback on claims processing software in use by insurers (which gets us back into that loop of insanity of undue industry influence).
